UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the Fiscal Year Ended December 31, 2016
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Transition Period From
to
Commission file number 1-10235
IDEX CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware
36-3555336
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
1925 West Field Court, Lake Forest, Illinois
60045
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number:
(847) 498-7070
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class
Name of Each Exchange on Which Registered
Common Stock, par value $.01 per share
New York Stock Exchange
and Chicago Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
No
The aggregate market value, as of the last business day of the registrant’s most recently completed second fiscal quarter, of the common
stock (based on the June 30, 2016 closing price of $82.10) held by non-affiliates of IDEX Corporation was $6,235,379,567.
The number of shares outstanding of IDEX Corporation’s common stock, par value $.01 per share, as of February 14, 2017 was
76,248,604.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement with respect to the IDEX Corporation 2017 annual meeting of stockholders (the “2017 Proxy Statement”)
are incorporated by reference into Part III of this Form 10-K.
Table of Contents
PART I.
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
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12
12
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13
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PART II.
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
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16
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PART III.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
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PART IV.
Item 15. Exhibits and Financial Statement Schedules
Item 16. Form 10-K Summary
Signatures
Exhibit Index
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PART I
Cautionary Statement Under the Private Securities Litigation Reform Act
This report contains “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of
1995, as amended. These statements may relate to, among other things, capital expenditures, acquisitions, cost reductions, cash
flow, revenues, earnings, market conditions, global economies and operating improvements, and are indicated by words or
phrases such as “anticipate,” “estimate,” “plans,” “expects,” “projects,” “forecasts,” “should,” “could,” “will,” “management
believes,” “the company believes,” “the company intends,” and similar words or phrases. These statements are subject to
inherent uncertainties and risks that could cause actual results to differ materially from those anticipated at the date of this
report. The risks and uncertainties include, but are not limited to, the following: economic and political consequences resulting
from terrorist attacks and wars; levels of industrial activity and economic conditions in the U.S. and other countries around the
world; pricing pressures, other competitive factors and levels of capital spending in certain industries, all of which could have a
material impact on order rates and IDEX Corporation’s results, particularly in light of the low levels of order backlogs it
typically maintains; its ability to make acquisitions and to integrate and operate acquired businesses on a profitable basis; the
relationship of the U.S. dollar to other currencies and its impact on pricing and cost competitiveness; political and economic
conditions in foreign countries in which the company operates; interest rates; capacity utilization and the effect this has on
costs; labor markets; market conditions and material costs; and developments with respect to contingencies, such as litigation
and environmental matters. The forward-looking statements included here are only made as of the date of this report, and
management undertakes no obligation to publicly update them to reflect subsequent events or circumstances, except as may be
required by law. Investors are cautioned not to rely unduly on forward-looking statements when evaluating the information
presented here.
Item 1.
Business.
IDEX Corporation (“IDEX,” the “Company,” “us,” “our,” or “we”) is a Delaware corporation incorporated on
September 24, 1987. The Company is an applied solutions business that sells an extensive array of pumps, valves, flow meters
and other fluidics systems and components and engineered products to customers in a variety of markets around the world. All
of the Company’s business activities are carried out through wholly-owned subsidiaries.
The Company has three reportable business segments: Fluid & Metering Technologies (“FMT”), Health & Science
Technologies (“HST”) and Fire & Safety/Diversified Products (“FSDP”). Within our three reportable segments, the Company
maintains thirteen platforms, where we focus on organic growth and strategic acquisitions. Each of our thirteen platforms is
also a reporting unit, where we annually test for goodwill impairment.
During the fourth quarter of 2016, the Company reorganized certain of its reporting units to align with changes in management
and as a result of certain divestitures as well as to align with how management will run the business going forward as follows:
•
•
•
•
•
Moved the Richter and Aegis businesses from the previous Industrial reporting unit to the Valves reporting unit;
Moved the Trebor business from the previous Industrial reporting unit to the Water reporting unit;
Replaced the previous Industrial reporting unit with the Pumps reporting unit, which now includes Viking and
Warren Rupp;
Combined the Scientific Fluidics and IDEX Optics & Photonics reporting units into the Scientific Fluidics &
Optics reporting unit; and
Combined the Fire Suppression and Rescue reporting units into the Fire & Safety reporting unit.
The Fluid & Metering Technologies segment contains the Energy (comprised of Corken, Faure Herman, Liquid Controls,
SAMPI, and Toptech), Valves (comprised of Alfa Valvole, Richter, and Aegis), Water (comprised of Pulsafeeder, Knight, ADS,
Trebor, and iPEK), Pumps (comprised of Viking and Warren Rupp), and Agriculture (comprised of Banjo) platforms. The Health &
Science Technologies segment contains the Scientific Fluidics & Optics (comprised of Eastern Plastics, Rheodyne, Sapphire
Engineering, Upchurch Scientific, ERC, CiDRA Precision Services, CVI Melles Griot, Semrock, and AT Films), Sealing Solutions
(comprised of Precision Polymer Engineering, FTL Seals Technology, Novotema, and SFC Koenig), Gast, Micropump, and Material
Processing Technologies (comprised of Quadro, Fitzpatrick, Microfluidics, and Matcon) platforms. The Fire & Safety/Diversified
Products segment is comprised of the Fire & Safety (comprised of Class 1, Hale, Godiva, Akron Brass, AWG Fittings, Dinglee,
Hurst Jaws of Life, Lukas, and Vetter), Band-It, and Dispensing platforms.
IDEX believes that each of its reporting units is a leader in its product and service areas. The Company also believes that
its strong financial performance has been attributable to its ability to design and engineer specialized quality products, coupled
with its ability to identify and successfully consummate and integrate strategic acquisitions.
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FLUID & METERING TECHNOLOGIES SEGMENT
The Fluid & Metering Technologies segment designs, produces and distributes positive displacement pumps, valves, flow
meters, injectors, and other fluid-handling pump modules and systems and provides flow monitoring and other services for the
food, chemical, general industrial, water & wastewater, agriculture and energy industries. Fluid & Metering Technologies
application-specific pump and metering solutions serve a diverse range of end markets, including industrial infrastructure (fossil
fuels, refined & alternative fuels, and water & wastewater), chemical processing, agriculture, food & beverage, pulp and paper,
transportation, plastics and resins, electronics and electrical, construction & mining, pharmaceutical and bio-pharmaceutical,
machinery and numerous other specialty niche markets.
Fluid & Metering Technologies accounted for 40%, 43% and 42% of IDEX’s sales in 2016, 2015 and 2014, respectively,
with approximately 44% of its 2016 sales to customers outside the U.S. The segment accounted for 44%, 43% and 43% of IDEX’s
operating income in 2016, 2015 and 2014, respectively.
Energy. Energy consists of the Company’s Corken, Faure Herman, Liquid Controls, SAMPI, and Toptech businesses.
Energy is a leading supplier of flow meters, electronic registration and control products, rotary vane and turbine pumps,
reciprocating piston compressors, and terminal automation control systems. Applications for Liquid Controls and SAMPI
consist of positive displacement flow meters, electronic, registration and control products, including mobile and stationary
metering installations for wholesale and retail distribution of petroleum and liquefied petroleum gas, aviation refueling, and
industrial metering and dispensing of liquids and gases. Corken products consist of positive-displacement rotary vane pumps,
single and multistage regenerative turbine pumps, and small horsepower reciprocating piston compressors. Toptech supplies
terminal automation hardware and software to control and manage inventories, as well as transactional data and invoicing, to
customers in the oil, gas and refined-fuels markets. Faure Herman is a leading supplier of ultrasonic and helical turbine flow
meters used in the custody transfer and control of high value fluids and gases. Energy maintains facilities in Lake Bluff, Illinois
(Liquid Controls products); Longwood, Florida and Zwijndrecht, Belgium (Toptech products); Oklahoma City, Oklahoma
(Corken products); La Ferté Bernard, France (Faure Herman products); and Altopascio, Italy (SAMPI products). Approximately
50% of Energy’s 2016 sales were to customers outside the U.S.
Valves. Valves consists of the Company’s Alfa Valvole, Richter, and Aegis businesses. Valves is a leader in the design,
manufacture and sale of specialty valve products for use in the chemical, petro-chemical, energy and sanitary markets as well as
a leading producer of fluoroplastic lined corrosion-resistant magnetic drive and mechanical seal pumps, shut-off, control and
safety valves for corrosive, hazardous, contaminated, pure and high-purity fluids. Alfa Valvole’s products are used in various
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industrial fields for fluid control, in both gas and liquid form, in all sectors of plant engineering, cosmetics, detergents, food
industry, electric energy, pharmaceutical, chemical plants, petrochemical plants, oil, heating/air conditioning and also on ships,
ferries and marine oil platforms. Richter’s products offer superior solutions for demanding and complex pump applications in
the process industry. Aegis produces specialty chemical processing valves for use in the chemical, petro-chemical, chlor-alkali,
and pulp & paper industries. Valves maintains operations in Casorezzo, Italy (Alfa Valvole products); Cedar Falls, Iowa,
Kempen, Germany, and Suzhou, China (Richter products); and Geismar, Louisiana (Aegis products). Approximately 81% of
Valves’ 2016 sales were to customers outside the U.S.
Water. Water consists of the Company’s ADS, iPEK, Knight, Trebor, and Pulsafeeder businesses. Water is a leading
provider of metering technology, flow monitoring products and underground surveillance services for wastewater markets, alloy
and non-metallic gear pumps, peristaltic pumps, transfer pumps, as well as dispensing equipment for industrial laundries,
commercial dishwashing and chemical metering. ADS’s products and services provide comprehensive integrated solutions that
enable industry, municipalities and government agencies to analyze and measure the capacity, quality and integrity of
wastewater collection systems, including the maintenance and construction of such systems. iPEK supplies remote controlled
systems used for infrastructure inspection. Knight is a leading manufacturer of pumps and dispensing equipment for industrial
laundries, commercial dishwashing and chemical metering. Trebor is a leader in high-purity fluid handling products, including
air-operated diaphragm pumps and deionized water-heating systems. Trebor products are used in the manufacturing of
semiconductors, disk drives and flat panel displays. Pulsafeeder products (which also include OBL products) are used to
introduce precise amounts of fluids into processes to manage water quality and chemical composition, as well as peristaltic
pumps. Its markets include water & wastewater treatment, oil & gas, power generation, pulp & paper, chemical and
hydrocarbon processing, and swimming pools. Water maintains operations in Huntsville, Alabama and various other locations
in the United States and Australia (ADS products and services); Hirschegg, Austria and Sulzberg, Germany (iPEK products);
Rochester, New York, Punta Gorda, Florida, and Milan, Italy (Pulsafeeder products); Salt Lake City, Utah (Trebor products);
Irvine, California, Mississauga, Ontario, Canada, and Lewes, England (Knight products); and a maquiladora in Ciudad Juarez,
Chihuahua, Mexico (Knight products). Approximately 38% of Water’s 2016 sales were to customers outside the U.S.
Pumps. Pumps consists of the Company’s Viking and Warren Rupp businesses. Pumps is a leading manufacturer of
rotary internal gear, external gear, vane and rotary lobe pumps, custom-engineered OEM pumps, strainers, gear reducers and
engineered pump systems. Viking’s products consist of external gear pumps, strainers and reducers, and related controls used
for transferring and metering thin and viscous liquids sold under the Viking and Wright Flow brands. Viking products primarily
serve the chemical, petroleum, pulp & paper, plastics, paints, inks, tanker trucks, compressor, construction, food & beverage,
personal care, pharmaceutical and biotech markets. Warren Rupp products (which also include Pumper Parts and Versa-Matic
products) are used for abrasive and semisolid materials as well as for applications where product degradation is a concern or
where electricity is not available or should not be used. Warren Rupp products, which include air-operated double diaphragm
pumps, primarily serve the chemical, paint, food processing, electronics, construction, utilities, oil & gas, mining and industrial
maintenance markets. Pumps maintains operations in Cedar Falls, Iowa (Viking and Wright Flow products); Eastbourne,
England (Wright Flow products); Shannon, Ireland (Viking and Blagdon products); and Mansfield, Ohio (Warren Rupp
products). Pumps primarily uses independent distributors to market and sell its products. Approximately 40% of Pumps’ 2016
sales were to customers outside the U.S.
Agriculture. Agriculture consists of the Company’s Banjo business. Banjo is a provider of special purpose, severe-duty
pumps, valves, fittings and systems used in liquid handling. Banjo is based in Crawfordsville, Indiana with distribution facilities
in Didam, The Netherlands and Valinhos, Brazil, and its products are used in agriculture and industrial applications.
Approximately 13% of Banjo’s 2016 sales were to customers outside the U.S.
HEALTH & SCIENCE TECHNOLOGIES SEGMENT
The Health & Science Technologies segment designs, produces and distributes a wide range of precision fluidics, rotary
lobe pumps, centrifugal and positive displacement pumps, roll compaction and drying systems used in beverage, food
processing, pharmaceutical and cosmetics, pneumatic components and sealing solutions, including very high precision, lowflow rate pumping solutions required in analytical instrumentation, clinical diagnostics and drug discovery, high performance
molded and extruded, biocompatible medical devices and implantables, air compressors used in medical, dental and industrial
applications, optical components and coatings for applications in the fields of scientific research, defense, biotechnology,
aerospace, telecommunications and electronics manufacturing, laboratory and commercial equipment used in the production of
micro and nano scale materials, precision photonic solutions used in life sciences, research and defense markets, and precision
gear and peristaltic pump technologies that meet exacting original equipment manufacturer specifications.
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Health & Science Technologies accounted for 35%, 36% and 35% of IDEX’s sales in 2016, 2015 and 2014, respectively,
with approximately 55% of its 2016 sales to customers outside the U.S. The segment accounted for 31%, 33% and 31% of
IDEX’s operating income in 2016, 2015 and 2014, respectively.
Scientific Fluidics & Optics. Scientific Fluidics & Optics consists of the Company’s Eastern Plastics, Rheodyne,
Sapphire Engineering, Upchurch Scientific, ERC, CiDRA Precision Services, CVI Melles Griot, Semrock, and AT Films
(including Precision Photonics products) businesses. Eastern Plastics products, which consist of high-precision integrated
fluidics and associated engineered manifolds, are used in a broad set of end markets including medical diagnostics, analytical
instrumentation, and laboratory automation. Rheodyne products consist of injectors, valves, fittings and accessories for the
analytical instrumentation market. These products are used by manufacturers of high pressure liquid chromatography (“HPLC”)
equipment servicing the pharmaceutical, biotech, life science, food & beverage, and chemical markets. Sapphire Engineering
and Upchurch Scientific products consist of fluidic components and systems for the analytical, biotech and diagnostic
instrumentation markets, such as fittings, precision-dispensing pumps and valves, tubing and integrated tubing assemblies, filter
sensors and other micro-fluidic and nano-fluidic components, as well as advanced column hardware and accessories for the
high performance liquid chromatography market. The products produced by Sapphire Engineering and Upchurch Scientific
primarily serve the pharmaceutical, drug discovery, chemical, biochemical processing, genomics/proteomics research,
environmental labs, food/agriculture, medical lab, personal care, and plastics/polymer/rubber production markets. ERC
manufactures gas liquid separations and detection solutions for the life science, analytical instrumentation and clinical
chemistry markets. ERC’s products consist of in-line membrane vacuum degassing solutions, refractive index detectors and
ozone generation systems. CiDRA Precision Services’ products consist of microfluidic components serving the life science,
health and industrial market. CVI Melles Griot is a global leader in the design and manufacture of precision photonic solutions
used in the life sciences, research, semiconductor, security and defense markets. CVI Melles Griot’s innovative products are
focused on the generation, control and productive use of light for a variety of key science and industrial applications. Products
consist of specialty lasers and light sources, electro-optical components, specialty shutters, opto-mechanical assemblies and
components. In addition, CVI Melles Griot produces critical components for life science research, electronics manufacturing,
military and other industrial applications including lenses, mirrors, filters and polarizers. These components are utilized in a
number of important applications such as spectroscopy, cytometry (cell counting), guidance systems for target designation,
remote sensing, menology and optical lithography. Semrock is a provider of optical filters for biotech and analytical
instrumentation in the life sciences markets. Semrock’s optical filters are produced using state-of-the-art manufacturing
processes which enable it to offer its customers significant improvements in instrument performance and reliability. AT Films
specializes in optical components and coatings for applications in the fields of scientific research, defense, aerospace,
telecommunications and electronics manufacturing. AT Films’ core competence is the design and manufacture of filters,
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splitters, reflectors and mirrors with the precise physical properties required to support their customers’ most challenging and
cutting-edge optical applications. The Precision Photonics portion of its business specializes in optical components and coatings
for applications in the fields of scientific research, aerospace, telecommunications and electronics manufacturing. Scientific
Fluidics & Optics has facilities in Bristol, Connecticut (Eastern Plastics products); Rohnert Park, California (Rheodyne
products); Middleboro, Massachusetts (Sapphire Engineering products); Oak Harbor, Washington (Upchurch Scientific
products); Kawaguchi, Japan (ERC products); Wallingford, Connecticut (CiDRA Precision Services products); Albuquerque,
New Mexico; Carlsbad, California; Rochester, New York; Leicester, England; and Didam, The Netherlands (CVI Melles Griot
products); Rochester, New York (Semrock products); and Boulder, Colorado (AT Films products). Approximately 53% of
Scientific Fluidics & Optics’ 2016 sales were to customers outside the U.S.
Sealing Solutions. Sealing Solutions consists of the Company’s Precision Polymer Engineering, FTL Seals
Technology, Novotema, and SFC Koenig businesses. Precision Polymer Engineering is a provider of proprietary high
performance seals and advanced sealing solutions for a diverse range of global industries and applications, including hazardous
duty, analytical instrumentation, semiconductor, process technologies, oil & gas, pharmaceutical, electronics, and food
applications. Precision Polymer Engineering is headquartered in Blackburn, England with an additional manufacturing facility
in Brenham, Texas. FTL Seals Technology, located in Leeds, England, specializes in the design and application of high
integrity rotary seals, specialty bearings, and other custom products for the mining, power generation, and marine markets.
Novotema, located in Villongo, Italy, is a leader in the design, manufacture and sale of specialty sealing solutions for use in the
building products, gas control, transportation, industrial and water markets. SFC Koenig is a producer of highly engineered
expanders and check valves for critical applications across the transportation, hydraulic, aviation and medical markets. SFC
Koenig is based in Dietikon, Switzerland, with additional facilities in North Haven, Connecticut; Illerrieden, Germany; and
Suzhou, China. Approximately 78% of Sealing Solutions’ 2016 sales were to customers outside the U.S.
Gast. The Gast business is a leading manufacturer of air-moving products, including air motors, low-range and
medium-range vacuum pumps, vacuum generators, regenerative blowers and fractional horsepower compressors. Gast products
are used in a variety of long-life applications requiring a quiet, clean source of moderate vacuum or pressure. Gast products
primarily serve the medical equipment, environmental equipment, computers and electronics, printing machinery, paint mixing
machinery, packaging machinery, graphic arts, and industrial manufacturing markets. Based in Benton Harbor, Michigan, Gast
also has a logistics and commercial center in Redditch, England. Approximately 25% of Gast’s 2016 sales were to customers
outside the U.S.
Micropump. Micropump, headquartered in Vancouver, Washington, is a leader in small, precision-engineered,
magnetically and electromagnetically driven rotary gear, piston and centrifugal pumps. Micropump products are used in lowflow abrasive and corrosive applications. Micropump products primarily serve the continuous ink-jet printing, medical
equipment, chemical processing, pharmaceutical, refining, laboratory, electronics, textiles, peristaltic metering pumps,
analytical process controllers and sample preparation systems markets. Approximately 76% of Micropump’s 2016 sales were to
customers outside the U.S.
Material Processing Technologies. Material Processing Technologies consists of the Company’s Quadro, Fitzpatrick,
Microfluidics, and Matcon businesses. Quadro is a leading provider of particle control solutions for the pharmaceutical and biopharmaceutical markets. Based in Waterloo, Canada, Quadro’s core capabilities include fine milling, emulsification and special
handling of liquid and solid particulates for laboratory, pilot phase and production scale processing. Fitzpatrick is a global
leader in the design and manufacture of process technologies for the pharmaceutical, food and personal care markets.
Fitzpatrick designs and manufactures customized size reduction, roll compaction and drying systems to support their customers’
product development and manufacturing processes. Fitzpatrick is headquartered in Elmhurst, Illinois. Microfluidics is a global
leader in the design and manufacture of laboratory and commercial equipment used in the production of micro and nano scale
materials for the pharmaceutical and chemical markets. Microfluidics is the exclusive producer of the Microfluidizer family of
high shear fluid processors for uniform particle size reduction, robust cell disruption and nanoparticle creation. Microfluidics is
based in Waterloo, Canada and has offices in Newton, Massachusetts. Matcon is a global leader in material processing solutions
for high value powders used in the manufacture of pharmaceuticals, food, plastics, and fine chemicals. Matcon’s innovative
products consist of the original cone valve powder discharge system and filling, mixing and packaging systems, all of which
support its customers’ automation and process requirements. These products are critical to its customers’ need to maintain clean,
reliable and repeatable formulations of prepackaged foods and pharmaceuticals while helping them achieve lean and agile
manufacturing. Matcon is located in Evesham, England. Approximately 63% of Material Processing Technologies’ 2016 sales
were to customers outside the U.S.
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FIRE & SAFETY/DIVERSIFIED PRODUCTS SEGMENT
The Fire & Safety/Diversified Products segment produces firefighting pumps and controls, apparatus valves, monitors,
nozzles, rescue tools, lifting bags and other components and systems for the fire and rescue industry, engineered stainless steel
banding and clamping devices used in a variety of industrial and commercial applications, and precision equipment for
dispensing, metering and mixing colorants and paints used in a variety of retail and commercial businesses around the world.
The Fire & Safety/Diversified Products segment accounted for 25%, 21% and 23% of IDEX’s sales in 2016, 2015 and
2014, respectively, with approximately 51% of its 2016 sales to customers outside the U.S. The segment accounted for 25%,
24% and 26% of IDEX’s operating income in 2016, 2015 and 2014, respectively.
Fire & Safety. Fire & Safety consists of the Company’s Class 1, Hale, Godiva, Akron Brass, AWG Fittings, Dinglee,
Hurst Jaws of Life, Lukas, and Vetter businesses, which produce truck-mounted and portable fire pumps, stainless steel valves,
monitors, apparatus valves, nozzles, foam and compressed air foam systems, pump modules and pump kits, electronic controls
and information systems, conventional and networked electrical systems, mechanical components for the fire, rescue and
specialty vehicle markets, hydraulic, battery, gas and electric-operated rescue equipment, hydraulic re-railing equipment,
hydraulic tools for industrial applications, recycling cutters, pneumatic lifting and sealing bags for vehicle and aircraft rescue,
environmental protection and disaster control, and shoring equipment for vehicular or structural collapse. Fire & Safety’s
customers are OEMs as well as public and private fire and rescue organizations. Fire & Safety maintains facilities in Ocala,
Florida (Class 1 and Hale products); Warwick, England (Godiva products); Wooster and Columbus, Ohio (Akron Brass and
Weldon products); Ballendorf, Germany (AWG Fittings products); Shelby, North Carolina (Hurst Jaws of Life products);
Tianjin, China (Dinglee products); Erlangen, Germany (Lukas products); and Zulpich, Germany (Vetter products).
Approximately 48% of Fire & Safety’s 2016 sales were to customers outside the U.S.
Band-It. Band-It is a leading producer of high-quality stainless steel banding, buckles and clamping systems. The
BAND-IT brand is highly recognized worldwide. Band-It products are used for securing exhaust system heat and sound shields,
industrial hose fittings, traffic signs and signals, electrical cable shielding, identification and bundling, and in numerous other
industrial and commercial applications. Band-It products primarily serve the automotive, transportation equipment, oil & gas,
general industrial maintenance, electronics, electrical, communications, aerospace, utility, municipal and subsea marine
markets. Band-It is based in Denver, Colorado, with additional operations in Staveley, England. Approximately 38% of BandIt’s 2016 sales were to customers outside the U.S.
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Dispensing. Dispensing produces precision equipment for dispensing, metering and mixing colorants and paints used in
a variety of retail and commercial businesses around the world. Dispensing is a global supplier of precision-designed tinting,
mixing, dispensing and measuring equipment for auto refinishing and architectural paints. Dispensing products are used in
retail and commercial stores, hardware stores, home centers, department stores, automotive body shops as well as point-ofpurchase dispensers. Dispensing maintains facilities in Sassenheim, The Netherlands; Wheeling, Illinois; Unanderra, Australia;
and Milan, Italy, as well as IDEX shared manufacturing facilities in India and China. Approximately 65% of Dispensing’s 2016
sales were to customers outside the U.S.
INFORMATION APPLICABLE TO THE COMPANY’S BUSINESS IN GENERAL AND ITS SEGMENTS
Competitors
The Company’s businesses participate in highly competitive markets. IDEX believes that the principal points of
competition are product quality, price, design and engineering capabilities, product development, conformity to customer
specifications, quality of post-sale support, timeliness of delivery, and effectiveness of our distribution channels.
Principal competitors of the Fluid & Metering Technologies segment are the Pump Solutions Group (Maag, Blackmer and
Wilden products) of Dover Corporation (with respect to pumps and small horsepower compressors used in liquified petroleum
gas distribution facilities, rotary gear pumps, and air-operated double-diaphragm pumps); Milton Roy LLC (with respect to
metering pumps and controls); and Tuthill Corporation (with respect to rotary gear pumps).
Principal competitors of the Health & Science Technologies segment are the Thomas division of Gardner Denver, Inc.
(with respect to vacuum pumps and compressors); Thermo Scientific Dionex products (with respect to analytical
instrumentation); Parker Hannifin (with respect to sealing devices); Valco Instruments Co., Inc. (with respect to fluid injectors
and valves); and Gooch & Housego PLC (with respect to electro-optic and precision photonics solutions used in the life
sciences market).
The principal competitors of the Fire & Safety/Diversified Products segment are Waterous Company, a unit of American
Cast Iron Pipe Company (with respect to truck-mounted firefighting pumps); Holmatro, Inc. (with respect to rescue tools);
Corob S.p.A. (with respect to dispensing and mixing equipment for the paint industry); and Panduit Corporation (with respect
to stainless steel bands, buckles and clamping systems).
Customers
The principal customers for our products are discussed immediately above by product category in each segment. None of our
customers in 2016 accounted for more than two percent of net sales.
Employees
At December 31, 2016, the Company had 7,158 employees. Approximately 9% of employees were represented by labor
unions, with various contracts expiring through June 2020. Management believes that the Company has a positive relationship
with its employees. The Company historically has been able to renegotiate its collective bargaining agreements satisfactorily,
with its last work stoppage in March 1993.
Suppliers
The Company manufactures many of the parts and components used in its products. Substantially all materials, parts and
components purchased by the Company are available from multiple sources.
Inventory and Backlog
The Company regularly and systematically adjusts production schedules and quantities based on the flow of incoming
orders. Backlogs typically are limited to one to one and a half months of production. While total inventory levels also may be
affected by changes in orders, the Company generally tries to maintain relatively stable inventory levels based on its assessment
of the requirements of the various industries served.
Raw Materials
The Company uses a wide variety of raw materials which are generally available from a number of sources. As a result,
shortages from any single supplier have not had, and are not likely to have a material impact on operations.
7
Shared Services
The Company has production facilities in Suzhou, China and Vadodara, India that support multiple business units. IDEX
also has personnel in China, India, Dubai, Mexico, Latin America and Singapore that provide sales and marketing, product
design and engineering, and sourcing support to its business units, as well as personnel in various locations in South America,
the Middle East, Korea and Japan to support sales and marketing efforts of IDEX businesses in those regions.
Segment Information
For segment financial information for the years 2016, 2015 and 2014, including financial information about foreign and
domestic sales and operations, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
and Note 11 of the Notes to Consolidated Financial Statements in Part II, Item 8, “Financial Statements and Supplementary
Data.”
Executive Officers of the Registrant
Set forth below are the names of the executive officers of the Company, their ages, years of service, the positions held by
them, and their business experience during the past five years.
Name
Age
Years of
Service
Andrew K. Silvernail
William K. Grogan
Eric D. Ashleman
Denise R. Cade
Daniel J. Salliotte
Michael J. Yates
Jeffrey D. Bucklew
46
38
49
54
50
51
46
53
8
5
8
1
12
11
5
5
James MacLennan
Position
Chairman of the Board and Chief Executive Officer
Senior Vice President and Chief Financial Officer
Senior Vice President and Chief Operating Officer
Senior Vice President, General Counsel and Corporate Secretary
Senior Vice President-Corporate Strategy, Mergers & Acquisitions and Treasury
Vice President and Chief Accounting Officer
Senior Vice President-Chief Human Resources Officer
Senior Vice President-Chief Information Officer
Mr. Silvernail has served as Chief Executive Officer since August 2011 and as Chairman of the Board since January
2012. Prior to that, Mr. Silvernail was Vice President-Group Executive Health & Science Technologies, Global Dispensing and
Fire & Safety/Diversified Products from January 2011 to August 2011. From February 2010 to December 2010, Mr. Silvernail
was Vice President-Group Executive Health & Sciences Technologies and Global Dispensing. Mr. Silvernail joined IDEX in
January 2009 as Vice President-Group Executive Health & Science Technologies.
Mr. Grogan has served as Senior Vice President and Chief Financial Officer since January 2017. Prior to that, Mr. Grogan
served as Vice President of Finance, Operations from July 2015 through January 2017. From January 2012 through July 2015,
Mr. Grogan was Vice President-Finance for the Company’s Health & Science Technologies and Fire & Safety/Diversified
Products segments.
Mr. Ashleman has served as Senior Vice President and Chief Operating Officer since July 2015. Prior to that, Mr.
Ashleman served as the Vice President-Group Executive of the Company’s Health & Science Technologies and Fire & Safety/
Diversified Products segments from January 2014 through July 2015 and President-Group Executive of the Company’s Fire &
Safety/Diversified Products segment from 2011 through January 2014. Mr. Ashleman joined IDEX in 2008 as the President of
Gast Manufacturing.
Ms. Cade has served as Senior Vice President, General Counsel and Corporate Secretary since joining IDEX in October
2015. Prior to joining IDEX, Ms. Cade was Senior Vice President, General Counsel, Corporate Secretary and Chief Compliance
Officer for SunCoke Energy, Inc. from March 2011 to October 2015 and held various roles at PPG Industries before joining
SunCoke.
Mr. Salliotte has served as Senior Vice President-Corporate Strategy, Mergers & Acquisitions and Treasury since
February 2011. Mr. Salliotte joined IDEX in October 2004 as Vice President-Strategy and Business Development.
Mr. Yates has served as Vice President and Chief Accounting Officer since February 2010, and served as interim Chief
Financial Officer from September 2016 to December 2016. Mr. Yates joined IDEX as Vice President-Controller in October
2005.
8
Mr. Bucklew has served as the Senior Vice President-Chief Human Resources Officer since joining IDEX in March 2012.
Prior to joining IDEX, Mr. Bucklew served as the Vice President of Human Resources for Accretive Health from March 2009 to
March 2012.
Mr. MacLennan has served as the Senior Vice President-Chief Information Officer since joining IDEX in March 2012.
Prior to joining IDEX, Mr. MacLennan had a dual role as CIO for Pactiv LLC and Vice President of IT for Reynolds Services
Inc.
The Company’s executive officers are elected at a meeting of the Board of Directors immediately following the annual
meeting of stockholders, and they serve until the meeting of the Board immediately following the next annual meeting of
stockholders, or until their successors are duly elected and qualified or until their death, resignation or removal.
Public Filings
Copies of the Company’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments to those reports are made available free of charge at www.idexcorp.com as soon as reasonably practicable after
being filed electronically with the United States Securities and Exchange Commission (the “SEC”). Our reports are also
available free of charge on the SEC’s website, www.sec.gov. Information on the Company’s website is not incorporated into
this Form 10-K.
9
Item 1A.
Risk Factors.
For an enterprise as diverse and complex as the Company, a wide range of factors present risks to the Company and could
materially affect future developments and performance. In addition to the factors affecting specific business operations
identified in connection with the description of our operations and the financial results of our operations elsewhere in this
report, the most significant of these factors are as follows:
Changes in U.S. or International Economic Conditions Could Adversely Affect the Sales and Profitability of Our
Businesses.
In 2016, 50% of the Company’s sales were derived from domestic operations while 50% were derived from international
operations. The Company’s largest end markets include life sciences and medical technologies, fire and rescue, oil & gas, paint
and coatings, chemical processing, agriculture, water & wastewater treatment and optical filters and components. A slowdown
in the U.S. or global economy and, in particular, any of these specific end markets could reduce the Company’s sales and
profitability.
Change to Political and Economic Conditions in the U.S. and Foreign Countries in Which We Operate Could Adversely
Affect Our Business.
In 2016, approximately 50% of our total sales were to customers outside the U.S. We expect our international operations
and export sales to continue to be significant for the foreseeable future. Our sales from international operations and our sales
from export are both subject in varying degrees to risks inherent in doing business outside the U.S. These risks include the
following:
•
possibility of unfavorable circumstances arising from host country laws or regulations;
•
risks of economic instability;
•
currency exchange rate fluctuations and restrictions on currency repatriation;
•
potential negative consequences from changes to taxation policies;
•
disruption of operations from labor and political disturbances;
•
withdrawal from or renegotiation of international trade agreements and other restrictions on the trade between the
United States and other countries;
•
changes in tariff and trade barriers and import or export licensing requirements; and
•
political instability, terrorism, insurrection or war.
Any of these events could have an adverse impact on our business and operations.
Our Inability to Continue to Develop New Products Could Limit Our Sales Growth.
Our ability to continue to grow organically is tied in large part to our ability to continue to develop new products.
Our Growth Strategy Includes Acquisitions and We May Not be Able to Make Acquisitions of Suitable Candidates or
Integrate Acquisitions Successfully.
Our historical growth has included, and our future growth is likely to continue to include, acquisitions. We intend to
continue to seek acquisition opportunities both to expand into new markets and to enhance our position in existing markets
throughout the world. We may not be able to successfully identify suitable candidates, negotiate appropriate acquisition terms,
obtain financing needed to consummate those acquisitions, complete proposed acquisitions or successfully integrate acquired
businesses into our existing operations. In addition, any acquisition, once successfully integrated, may not perform as planned,
be accretive to earnings, or otherwise prove beneficial to us.
Acquisitions involve numerous risks, including the assumption of undisclosed or unindemnified liabilities, difficulties in
the assimilation of the operations, technologies, services and products of the acquired companies and the diversion of
management’s attention from other business concerns. In addition, prior acquisitions have resulted in, and future acquisitions
could result in, the incurrence of substantial additional indebtedness and other expenses.
The Markets We Serve are Highly Competitive and this Competition Could Reduce our Sales and Operating Margins.
Most of our products are sold in competitive markets. Maintaining and improving our competitive position will require
continued investment by us in manufacturing, engineering, quality standards, marketing, customer service and support, and our
10
distribution networks. We may not be successful in maintaining our competitive position. Our competitors may develop
products that are superior to our products, or may develop methods of more efficiently and effectively providing products and
services or may adapt more quickly than us to new technologies or evolving customer requirements. Pricing pressures may
require us to adjust the prices of our products to stay competitive. We may not be able to compete successfully with our existing
competitors or with new competitors. Failure to continue competing successfully could reduce our sales, operating margins and
overall financial performance.
We are Dependent on the Availability of Raw Materials, Parts and Components Used in Our Products.
While we manufacture certain parts and components used in our products, we require substantial amounts of raw
materials and purchase some parts and components from suppliers. The availability and prices for raw materials, parts and
components may be subject to curtailment or change due to, among other things, suppliers’ allocations to other purchasers,
interruptions in production by suppliers, changes in exchange rates and prevailing price levels. Any change in the supply of, or
price for, these raw materials or parts and components could materially affect our business, financial condition, results of
operations and cash flow.
Significant Movements in Foreign Currency Exchange Rates May Harm Our Financial Results.
We are exposed to fluctuations in foreign currency exchange rates, particularly with respect to the Euro, Swiss Franc,
Canadian Dollar, British Pound, Indian Rupee and Chinese Renminbi. Any significant change in the value of the currencies of
the countries in which we do business against the U.S. Dollar could affect our ability to sell products competitively and control
our cost structure, which could have a material adverse effect on our results of operations. For additional detail related to this
risk, see Part II, Item 7A, “Quantitative and Qualitative Disclosure About Market Risk.”
Fluctuations in Interest Rates Could Adversely Affect Our Results of Operations and Financial Position.
Our profitability may be adversely affected during any periods of unexpected or rapid increases in interest rates. We
maintain a revolving credit facility, which bears interest at either an alternate base rate or an adjusted LIBOR rate plus, in each
case, an applicable margin based on the Company's senior, unsecured, long-term debt rating. A significant increase in LIBOR
would significantly increase our cost of borrowings. For additional detail related to this risk, see Part II, Item 7A, "Quantitative
and Qualitative Disclosure About Market Risk."
An Unfavorable Outcome of Any of Our Pending Contingencies or Litigation Could Adversely Affect Us.
We currently are involved in legal and regulatory proceedings. Where it is reasonably possible to do so, we accrue
estimates of the probable costs for the resolution of these matters. These estimates are developed in consultation with outside
counsel and are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies. It is
possible, however, that future operating results for any particular quarter or annual period could be materially affected by
changes in our assumptions or the effectiveness of our strategies related to these proceedings. For additional detail related to
this risk, see Item 3, “Legal Proceedings.”
Our Intangible Assets, Including Goodwill, are a Significant Portion of Our Total Assets and a Write-off of Our
Intangible Assets or Goodwill Would Adversely Impact Our Operating Results and Significantly Reduce Our Net Worth.
Our total assets reflect substantial intangible assets, primarily goodwill and identifiable intangible assets. At
December 31, 2016, goodwill and intangible assets totaled $1,632.6 million and $435.5 million, respectively. These assets
result from our acquisitions, representing the excess of the purchase price over the fair value of the tangible net assets we have
acquired. Annually, or when certain events occur that require a more current valuation, we assess whether there has been an
impairment in the value of our goodwill and identifiable intangible assets. If future operating performance at one or more of our
reporting units were to fall significantly below forecasted levels, we could be required to reflect, under current applicable
accounting rules, a non-cash charge to operating income for an impairment. Any determination requiring the write-off of a
significant portion of our goodwill or identifiable intangible assets would adversely impact our results of operations and net
worth. See Note 4 in Part II, Item 8, “Financial Statements and Supplementary Data” for further discussion on goodwill and
intangible assets.
A Significant or Sustained Decline in Commodity Prices, Including Oil, Could Negatively Impact the Levels of
Expenditures by Certain of Our Customers.
Demand for our products depends, in part, on the level of new and planned expenditures by certain of our customers. The
level of expenditures by our customers is dependent on, among other factors, general economic conditions, availability of
11
credit, economic conditions within their respective industries and expectations of future market behavior. Volatility in
commodity prices, including oil, can negatively affect the level of these activities and can result in postponement of capital
spending decisions or the delay or cancellation of existing orders. The ability of our customers to finance capital investment and
maintenance may also be affected by the conditions in their industries. Reduced demand for our products could result in the
delay or cancellation of existing orders or lead to excess manufacturing capacity, which unfavorably impacts our absorption of
fixed manufacturing costs. This reduced demand could have a material adverse effect on our business, financial condition and
results of operations.
Our Success Depends on Our Executive Management and Other Key Personnel.
Our future success depends to a significant degree on the skills, experience and efforts of our executive management and
other key personnel and their ability to provide the Company with uninterrupted leadership and direction. The loss of the
services of any of our executive officers or a failure to provide adequate succession plans for key personnel could have an
adverse impact. The availability of highly qualified talent is limited, and the competition for talent is robust. However, we
provide long-term equity incentives and certain other benefits for our executive officers which provide incentives for them to
make a long-term commitment to our Company. Our future success will also depend on our ability to have adequate succession
plans in place and to attract, retain and develop qualified personnel. A failure to efficiently replace executive management
members and other key personnel and to attract, retain and develop new qualified personnel could have an adverse effect on our
operations and implementation of our strategic plan.
Our Business Operations May Be Adversely Affected by Information Systems Interruptions or Intrusion.
We depend on various information technologies throughout our Company to administer, store and support multiple
business activities. If these systems are damaged, cease to function properly, or are subject to cyber-security attacks, such as
those involving unauthorized access, malicious software and/or other intrusions, we could experience production downtimes,
operational delays, other detrimental impacts on our operations or ability to provide products and services to our customers, the
compromising of confidential or otherwise protected information, destruction or corruption of data, security breaches, other
manipulation or improper use of our systems or networks, financial losses from remedial actions, loss of business or potential
liability, and/or damage to our reputation. While we attempt to mitigate these risks by employing a number of measures,
including employee training, technical security controls, and maintenance of backup and protective systems, our systems,
networks, products and services remain potentially vulnerable to known or unknown threats, any of which could have a
material adverse effect on our business, financial condition or results of operations.
Failure To Comply with the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act or Other Applicable Anti-bribery
Laws Could Have an Adverse Effect on Our Business.
The U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and similar anti-bribery laws in other jurisdictions generally
prohibit companies and their intermediaries from making improper payments for the purpose of obtaining or retaining business.
Recent years have seen a substantial increase in anti-bribery law enforcement activity with more frequent and aggressive
investigations and enforcement proceedings by both the Department of Justice and the SEC, increased enforcement activity by
non-U.S. regulators and increases in criminal and civil proceedings brought against companies and individuals. Our policies
mandate compliance with all anti-bribery laws. However, we operate in certain countries that are recognized as having
governmental and commercial corruption. Our internal control policies and procedures may not always protect us from reckless
or criminal acts committed by our employees or third-party intermediaries. Violations of these anti-bribery laws may result in
criminal or civil sanctions, which could have a material adverse effect on our business, financial condition and results of
operations.
Item 1B.
Unresolved Staff Comments.
None.
Item 2.
Properties.
The Company’s principal plants and offices have an aggregate floor space area of approximately 4.7 million square feet,
of which 2.9 million square feet (62%) is located in the U.S. and approximately 1.8 million square feet (38%) is located outside
the U.S., primarily in Germany (9%), U.K. (8%), Italy (6%), China (4%), India (3%), Canada (2%) and The Netherlands (2%).
Management considers these facilities suitable and adequate for the Company’s operations. Management believes the Company
can meet demand increases over the near term with its existing facilities, especially given its operational improvement
initiatives that usually increase capacity. The Company’s executive office occupies 36,588 square feet of leased space in Lake
Forest, Illinois and 4,420 square feet of leased space in Chicago, Illinois.
12
Approximately 3.3 million square feet (70%) of the principal plant and office floor area is owned by the Company, and
the balance is held under lease. Approximately 1.7 million square feet (36%) of the principal plant and office floor area is held
by business units in the Fluid & Metering Technologies segment; 1.4 million square feet (30%) is held by business units in the
Health & Science Technologies segment; and 1.3 million square feet (28%) is held by business units in the Fire & Safety/
Diversified Products segment. The remaining 0.3 million square feet include the executive office as well as shared services
locations.
Item 3.
Legal Proceedings.
The Company and six of its subsidiaries are presently named as defendants in a number of lawsuits claiming various
asbestos-related personal injuries and seeking money damages, allegedly as a result of exposure to products manufactured with
components that contained asbestos. These components were acquired from third party suppliers, and were not manufactured by
the Company or any of the defendant subsidiaries. To date, the majority of the Company’s settlements and legal costs, except
for costs of coordination, administration, insurance investigation and a portion of defense costs, have been covered in full by
insurance subject to applicable deductibles. However, the Company cannot predict whether and to what extent insurance will be
available to continue to cover its settlements and legal costs, or how insurers may respond to claims that are tendered to them.
Claims have been filed in jurisdictions throughout the United States. Most of the claims resolved to date have been dismissed
without payment. The balance have been settled for various insignificant amounts. Only one case has been tried, resulting in a
verdict for the affected business unit. No provision has been made in the financial statements of the Company for these
asbestos-related claims, other than for insurance deductibles in the ordinary course, and the Company does not currently believe
these claims will have a material adverse effect on the Company’s business, financial position, results of operations or cash
flows.
The Company is also party to various other legal proceedings arising in the ordinary course of business, none of which is
expected to have a material adverse effect on its financial condition, results of operations or cash flows.
Item 4.
Mine Safety Disclosures.
Not applicable.
13
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
The principal market for the Company’s common stock is the New York Stock Exchange, but the common stock is also
listed on the Chicago Stock Exchange. As of February 14, 2017, there were approximately 7,030 stockholders of record of our
common stock and there were 76,248,604 shares outstanding.
The high and low sales prices of the common stock per share and the dividends paid per share during the last two years
are as follows:
2016
High
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$
2015
Low
84.05
87.18
95.33
95.76
$
Dividends
67.20
77.93
79.91
82.05
$
High
0.32
0.34
0.34
0.34
$
78.85
80.31
79.61
79.59
Low
$
Dividends
69.44
73.80
66.88
69.40
$
0.28
0.32
0.32
0.32
Our payment of dividends in the future will be determined by our Board of Directors and will depend on business
conditions, our earnings and other factors.
For information pertaining to securities authorized for issuance under equity compensation plans and the related weighted
average exercise price, see Part III, Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.”
The Company’s purchases of common stock during the quarter ended December 31, 2016 are as follows:
Period
Total Number of
Shares Purchased
October 1, 2016 to October 31, 2016
November 1, 2016 to November 30, 2016
December 1, 2016 to December 31, 2016
Total
—
—
—
—
Average Price
Paid per Share
$
$
—
—
—
—
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans
(1)
or Programs
—
—
—
—
Maximum Dollar
Value that May Yet
be Purchased Under
the Plans (1)
or Programs
$
$
580,010,084
580,010,084
580,010,084
580,010,084
(1) On December 1, 2015, the Company’s Board of Directors approved an increase of $300.0 million in the authorized level
of repurchases of common stock. This followed the prior Board of Directors approved repurchase authorization of
$400.0 million that was announced by the Company on November 6, 2014. These authorizations have no expiration
date.
14
Performance Graph. The following table compares total stockholder returns over the last five years to the Standard &
Poor’s (the “S&P”) 500 Index, the S&P Midcap Industrials Sector Index and the Russell 2000 Index assuming the value of the
investment in our common stock and each index was $100 on December 31, 2011. Total return values for our common stock,
the S&P 500 Index, S&P Midcap Industrials Sector Index and the Russell 2000 Index were calculated on cumulative total
return values assuming reinvestment of dividends. The stockholder return shown on the graph below is not necessarily
indicative of future performance.
12/11
IDEX Corporation
S&P 500 Index
S&P Midcap 400 Industrials Sector Index
Russell 2000 Index
$
$
$
$
100.00
100.00
100.00
100.00
12/12
$
$
$
$
125.38
113.41
120.51
114.63
15
12/13
$
$
$
$
199.00
146.98
171.67
157.05
12/14
$
$
$
$
209.75
163.72
172.18
162.60
12/15
$
$
$
$
206.44
162.53
164.81
153.31
12/16
$
$
$
$
242.68
178.02
209.44
183.17
Item 6.
Selected Financial Data.(1)
(Dollars in thousands, except per share data)
RESULTS OF OPERATIONS
2016
Net sales
Gross profit
Selling, general and administrative expenses
Loss (gain) on sale of businesses - net
Restructuring expenses
Asset impairments
Operating income
Other (income) expense - net
Interest expense
Provision for income taxes
Net income
Earnings per share (2)
— basic
— diluted
Weighted average shares outstanding
— basic
— diluted
Year-end shares outstanding
Cash dividends per share
FINANCIAL POSITION
$
Current assets
Current liabilities
Current ratio
Operating working capital (3)
Total assets (4)
Total borrowings (4)
Shareholders’ equity
PERFORMANCE MEASURES AND OTHER DATA
$
Percent of net sales:
Gross profit
Selling, general and administrative expenses
Operating income
Income before income taxes
Net income
Capital expenditures
Depreciation and amortization
Return on average assets (5)
Borrowings as a percent of capitalization (5)
Return on average shareholders’ equity (5)
Employees at year end
Record holders at year end
NON-GAAP MEASURES (6)
2015
2,113,043
930,767
498,994
22,298
3,674
—
405,801
(8,327)
45,616
97,403
271,109
$
$
3.57
3.53
$
75,803
76,758
76,441
1.36
$
$
EBITDA
EBITDA margin
$
Adjusted EBITDA
Adjusted EBITDA margin
Adjusted operating income
Adjusted operating margin
Adjusted net income
Adjusted earnings per share
$
822,721
309,158
2.7
396,739
3,154,944
1,015,281
1,543,894
$
$
$
3.65
3.62
$
77,126
77,972
76,535
1.28
$
$
44.0%
23.6%
19.2%
17.4%
12.8%
38,242
$
86,892
9.1%
39.7%
18.2%
7,158
7,030
501,020
$
23.7%
$
$
$
530,546
25.1%
435,327
20.6%
288,373
3.75
16
2,020,668
904,315
479,408
(18,070)
11,239
—
431,738
(2,243)
41,636
109,538
282,807
862,684
309,597
2.8
370,213
2,805,443
840,794
1,443,291
2014
$
3.48
3.45
$
79,715
80,728
78,766
1.12
$
$
$
25.3%
$
$
$
$
505,270
25.0%
424,907
21.0%
277,229
3.55
2,147,767
949,315
504,419
—
13,672
—
431,224
(3,111)
41,895
113,054
279,386
$
$
44.8%
23.7%
21.4%
19.4%
14.0%
43,776
$
78,120
9.9%
36.8%
19.3%
6,801
6,760
512,101
2013
1,075,791
411,968
2.6
366,209
2,903,463
859,345
1,486,451
$
2,024,130
873,364
477,851
—
—
—
395,513
178
42,206
97,914
255,215
$
$
$
3.11
3.09
$
$
0.45
0.45
$
81,517
82,489
81,196
0.89
$
82,689
83,641
82,727
0.80
$
$
44.2%
23.5%
20.1%
18.3%
13.0%
47,997
$
76,907
9.7%
36.6%
18.3%
6,712
6,500
511,242
$
23.8%
$
$
$
$
524,914
24.4%
444,896
20.7%
288,823
3.57
2012
990,953
304,609
3.3
350,881
2,881,118
767,417
1,572,989
$
$
43.1%
23.6%
19.5%
17.4%
12.6%
31,536
$
79,334
9.0%
32.8%
16.8%
6,787
6,500
474,669
$
23.5%
$
$
$
$
474,669
23.5%
395,513
19.5%
255,215
3.09
1,954,258
803,700
444,490
—
32,473
198,519
128,218
(236)
42,250
48,574
37,630
881,865
291,427
3.0
373,704
2,777,821
779,007
1,464,998
41.1%
22.7%
6.6%
4.4%
1.9%
35,520
78,312
1.3%
34.7%
2.5%
6,717
6,700
206,766
10.6%
$
$
$
$
437,758
22.4%
359,210
18.4%
224,067
2.68
(1)
For additional detail, see Notes to Consolidated Financial Statements in Part II, Item 8, “Financial Statements and
Supplementary Data.”
(2)
Calculated by applying the two-class method of allocating earnings to common stock and participating securities as
required by Accounting Standards Codification (“ASC”) 260, Earnings Per Share.
(3)
Operating working capital is defined as inventory plus accounts receivable minus accounts payable.
(4)
In the fourth quarter of fiscal year 2015, the Company adopted Accounting Standards Update 2015-03 regarding
simplifying the presentation of debt issuance costs. The update was applied retrospectively to all periods presented in
accordance with the provisions of the update. Refer to Note 1 for additional information related to ASU 2015-03 in the
Notes to Consolidated Financial Statements in Part II, Item 8, “Financial Statements and Supplementary Data.”
(5)
Return on average assets is calculated as: Net income / (Current year Total assets + Prior year Total assets) / 2;
Borrowings as a percent of capitalization is calculated as: (Long-term borrowings + Short-term borrowings) / (Long-term
borrowings + Short-term borrowings + Total shareholders’ equity); Return on average shareholders’ equity is calculated as
Net Income / (Current year Total shareholders’ equity + Prior year Total shareholders’ equity) / 2
(6)
Set forth below are reconciliations of Adjusted operating income, Adjusted net income, Adjusted EPS, EBITDA and
Adjusted EBITDA to the comparable measures of net income and operating income, as determined in accordance with
generally accepted accounting principles in the U.S. (“U.S. GAAP”). We have reconciled Adjusted operating income to
Operating income; Adjusted net income to Net income; Adjusted EPS to EPS; consolidated EBITDA, segment EBITDA,
adjusted EBITDA, and adjusted segment EBITDA to net income. The reconciliation of segment EBITDA to net income
was performed on a consolidated basis due to the fact that we do not allocate consolidated interest expense or the
consolidated provision for income taxes to our segments.
Management uses Adjusted operating income, Adjusted net income, and Adjusted EPS as metrics by which to measure
performance of the Company since they exclude items that are not reflective of ongoing operations, such as gains/losses
on the sale of businesses, restructuring expenses, and pension settlements. Management also supplements its U.S. GAAP
financial statements with adjusted information to provide investors with greater insight, transparency, and a more
comprehensive understanding of the information used by management in its financial and operational decision making.
EBITDA means earnings before interest, income taxes, depreciation and amortization. Given the acquisitive nature of the
Company which results in a higher level of amortization expense from recently acquired businesses, management uses
EBITDA as an internal operating metric to provide another representation of the businesses’ performance across our three
segments and for enterprise valuation purposes. EBITDA is also used to calculate certain financial covenants, as discussed
in Note 5 of the Notes to Consolidated Financial Statements in Part II, Item 8, “Financial Statements and Supplementary
Data.” In addition, EBITDA has been adjusted for items that are not reflective of ongoing operations, such as gains/losses
on the sale of businesses, restructuring expenses, and pension settlements to arrive at Adjusted EBITDA. Management
believes that Adjusted EBITDA is useful as a performance indicator of ongoing operations. We believe that Adjusted
EBITDA is also useful to some investors as an indicator of the strength and performance of the Company and its
segments’ ongoing business operations and a way to evaluate and compare operating performance and value companies
within our industry. The definition of Adjusted EBITDA used here may differ from that used by other companies.
The non-GAAP financial measures disclosed by the Company should not be considered a substitute for, or superior to,
financial measures prepared in accordance with U.S. GAAP. The financial results prepared in accordance with U.S.
GAAP and the reconciliations from these results should be carefully evaluated.
17
1. Reconciliations of Consolidated EBITDA
For the Years Ended December 31,
2016
2015
2014
2013
2012
(In thousands)
Net income
$
271,109
$
282,807
$
279,386
$
255,215
$
37,630
+ Provision for income taxes
97,403
109,538
113,054
97,914
48,574
+ Interest expense
45,616
41,636
41,895
42,206
42,250
+ Depreciation and amortization
86,892
78,120
76,907
79,334
78,312
501,020
512,101
511,242
474,669
206,766
3,674
11,239
13,672
—
32,473
22,298
(18,070)
EBITDA
+ Restructuring expenses
+ Loss (gain) on sale of businesses - net
—
—
—
+ Pension settlement
3,554
—
—
—
—
+ Asset impairments
—
—
—
—
198,519
Adjusted EBITDA
$
530,546
$
505,270
$
524,914
$
474,669
$
437,758
Net sales
$
2,113,043
$
2,020,668
$
2,147,767
$
2,024,130
$
1,954,258
EBITDA margin
23.7%
25.3%
23.8%
23.5%
10.6%
Adjusted EBITDA margin
25.1%
25.0%
24.4%
23.5%
22.4%
2. Reconciliations of Segment EBITDA
For the Years Ended December 31,
2016
FMT
HST
2015
FSDP
FMT
HST
2014
FSDP
FMT
HST
FSDP
(In thousands)
EBITDA
+ Restructuring
expenses
$ 242,892
$ 200,980
$ 135,400
$ 233,008
$ 200,953
$ 123,249
$ 243,899
$ 196,019
$ 138,067
932
1,117
1,425
7,090
3,408
576
6,413
4,912
1,034
2,032
—
540
—
—
—
—
—
—
Adjusted EBITDA
$ 245,856
$ 202,097
$ 137,365
$ 240,098
$ 204,361
$ 123,825
$ 250,312
$ 200,931
$ 139,101
Net sales
$ 849,101
$ 744,809
$ 520,009
$ 860,792
$ 738,996
$ 423,915
$ 899,588
$ 752,021
$ 502,749
+ Pension settlement
EBITDA margin
28.6%
27.0%
26.0%
27.1%
27.2%
29.1%
27.1%
26.1%
27.5%
Adjusted EBITDA
margin
29.0%
27.1%
26.4%
27.9%
27.7%
29.2%
27.8%
26.7%
27.7%
18
3. Reconciliations of Consolidated Reported-to-Adjusted Operating Income and Margin
For the Years Ended December 31,
2016
2015
2014
2013
2012
(In thousands)
Operating income
$
+ Restructuring expenses
+ Loss (gain) on sale of businesses - net
405,801
$
431,738
$
3,674
11,239
22,298
(18,070)
431,224
$
395,513
13,672
—
$
128,218
32,473
—
—
—
+ Asset impairments
—
—
—
—
198,519
+ Pension settlement
3,554
—
—
—
—
Adjusted operating income
$
435,327
$
424,907
$
444,896
$
395,513
$
359,210
Net sales
$
2,113,043
$
2,020,668
$
2,147,767
$
2,024,130
$
1,954,258
Operating margin
19.2%
21.4%
20.1%
19.5%
6.6%
Adjusted operating margin
20.6%
21.0%
20.7%
19.5%
18.4%
4. Reconciliations of Segment Reported-to-Adjusted Operating Income and Margin
For the Years Ended December 31,
2016
FMT
HST
2015
FSDP
FMT
HST
2014
FSDP
FMT
HST
FSDP
(In thousands)
Operating income
$ 214,242
$ 153,722
$ 121,888
$ 204,506
$ 157,948
$ 115,745
$ 216,886
$ 152,999
$ 130,494
932
1,117
1,425
7,090
3,408
576
6,413
4,912
1,034
2,032
—
540
—
—
—
—
—
—
Adjusted operating
income
$ 217,206
$ 154,839
$ 123,853
$ 211,596
$ 161,356
$ 116,321
$ 223,299
$ 157,911
$ 131,528
Net sales
$ 849,101
$ 744,809
$ 520,009
$ 860,792
$ 738,996
$ 423,915
$ 899,588
$ 752,021
$ 502,749
+ Restructuring
expenses
+ Pension
settlement
Operating margin
25.2%
20.6%
23.4%
23.8%
21.4%
27.3%
24.1%
20.3%
26.0%
Adjusted operating
margin
25.6%
20.8%
23.8%
24.6%
21.8%
27.4%
24.8%
21.0%
26.2%
19
5. Reconciliations of Reported-to-Adjusted Net Income and EPS
For the Years Ended December 31,
2016
2015
2014
2013
2012
(In thousands)
Net income
$
+ Restructuring expenses
+ Tax impact on restructuring expenses
+ Loss (gain) on sale of businesses
+ Tax impact on loss (gain) on sale of
businesses
+ Asset impairments
+Tax impact on asset impairments
+ Pension settlement
+ Tax impact on pension settlement
271,109
$
282,807
$
279,386
$
255,215
$
37,630
3,674
11,239
13,672
—
32,473
(1,299)
(3,586)
(4,235)
—
(9,547)
22,298
(18,070)
—
—
(9,706)
—
4,839
—
—
—
—
—
—
—
198,519
—
—
—
—
(35,008)
3,554
—
—
—
—
(1,257)
—
—
—
—
Adjusted net income
$
288,373
$
277,229
$
288,823
$
255,215
$
224,067
EPS
$
3.53
$
3.62
$
3.45
$
3.09
$
0.45
+ Restructuring expenses
+ Tax impact on restructuring expenses
+ Loss (gain) on sale of businesses
+ Tax impact on loss (gain) on sale of
businesses
0.05
0.14
0.17
—
0.39
(0.02)
(0.04)
(0.05)
—
(0.11)
0.29
(0.23)
—
—
(0.13)
—
0.06
—
—
—
+ Asset impairments
—
—
—
—
2.37
+Tax impact on asset impairments
—
—
—
(0.42)
0.05
—
+ Pension settlement
+ Tax impact on pension settlement
Adjusted EPS
Diluted weighted average shares
(0.02)
$
3.75
—
—
$
3.55
76,758
77,972
20
—
—
$
3.57
80,728
—
—
$
3.09
82,489
—
$
2.68
83,641
6. Reconciliations of EBITDA to Net Income (dollars in thousands)
For the Year Ended December 31, 2016
Operating income (loss)
- Other (income) expense - net
FMT
HST
FSDP
$ 214,242
$ 153,722
$ 121,888
(192)
+ Depreciation and amortization
EBITDA
Corporate
$
IDEX
(84,051) $ 405,801
(1,960)
(1,556)
(4,619)
(8,327)
28,458
45,298
11,956
1,180
86,892
242,892
200,980
135,400
(78,252)
501,020
- Interest expense
45,616
- Provision for income taxes
97,403
- Depreciation and amortization
86,892
Net income
$ 271,109
Net sales (eliminations)
$ 849,101
$ 744,809
$ 520,009
$
(876) $ 2,113,043
Operating margin
25.2%
20.6%
23.4%
n/m
19.2%
EBITDA margin
28.6%
27.0%
26.0%
n/m
23.7%
7. Reconciliations of EBITDA to Net Income (dollars in thousands)
For the Year Ended December 31, 2015
FMT
Operating income (loss)
$
- Other (income) expense - net
204,506
HST
$
(840)
+ Depreciation and amortization
EBITDA
157,948
FSDP
$
(178)
115,745
Corporate
$
(1,453)
27,662
42,827
6,051
233,008
200,953
123,249
IDEX
(46,461) $
228
(2,243)
1,580
78,120
(45,109)
512,101
- Interest expense
41,636
- Provision for income taxes
109,538
- Depreciation and amortization
78,120
Net income
Net sales (eliminations)
431,738
$
$
860,792
$
738,996
$
423,915
$
282,807
(3,035) $ 2,020,668
Operating margin
23.8%
21.4%
27.3%
n/m
21.4%
EBITDA margin
27.1%
27.2%
29.1%
n/m
25.3%
21
8. Reconciliations of EBITDA to Net Income (dollars in thousands)
For the Year Ended December 31, 2014
FMT
Operating income (loss)
$
- Other (income) expense - net
216,886
HST
$
152,999
(560)
+ Depreciation and amortization
EBITDA
FSDP
$
Corporate
130,494
(542)
$
(990)
26,453
42,478
6,583
243,899
196,019
138,067
IDEX
(69,155) $
431,224
(1,019)
(3,111)
1,393
76,907
(66,743)
511,242
- Interest expense
41,895
- Provision for income taxes
113,054
- Depreciation and amortization
76,907
Net income
$
Net sales (eliminations)
$
899,588
$
752,021
$
502,749
$
279,386
(6,591) $ 2,147,767
Operating margin
24.1%
20.3%
26.0%
n/m
20.1%
EBITDA margin
27.1%
26.1%
27.5%
n/m
23.8%
9. Reconciliation of the Change in Net Sales to Net Organic Sales
For the Years Ended December 31,
2016
FMT
Change in net sales
- Net impact from
acquisitions/divestitures
(1)%
- Impact from FX
Change in organic net sales
(1)%
HST
2015
FSDP
IDEX
5%
FMT
1%
23 %
(4)%
1%
3%
27 %
7%
(1)%
(1)%
(1)%
(1)%
(1)%
(3)%
(1)%
(2)%
HST
2014
FSDP
IDEX
(2)%
(16)%
2%
2%
—%
(4)%
(3)%
(6)%
(1)%
(10)%
(4)%
22
(6)%
FMT
HST
FSDP
IDEX
3%
5%
13%
6%
2%
1%
—%
—%
1%
(4)%
—%
1%
—%
—%
2%
4%
13%
5%
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
2016 Overview and Outlook
IDEX is an applied solutions company specializing in fluid and metering technologies, health and science technologies,
and fire, safety and other diversified products built to customers’ specifications. IDEX’s products are sold in niche markets to a
wide range of industries throughout the world. Accordingly, IDEX’s businesses are affected by levels of industrial activity and
economic conditions in the U.S. and in other countries where it does business and by the relationship of the U.S. dollar to other
currencies. Levels of capacity utilization and capital spending in certain industries and overall industrial activity are important
factors that influence the demand for IDEX’s products.
The Company has three reportable business segments: Fluid & Metering Technologies, Health & Science Technologies
and Fire & Safety/Diversified Products. Within our three reportable segments, the Company maintains thirteen platforms,
where we focus on organic growth and strategic acquisitions. Each of our thirteen platforms is also a reporting unit, where we
annually test for goodwill impairment.
The Fluid & Metering Technologies segment contains the Energy (comprised of Corken, Faure Herman, Liquid Controls,
SAMPI, and Toptech), Valves (comprised of Alfa Valvole, Richter, and Aegis), Water (comprised of Pulsafeeder, Knight, ADS,
Trebor, and iPEK), Pumps (comprised of Viking and Warren Rupp), and Agriculture (comprised of Banjo) platforms. The Health &
Science Technologies segment contains the Scientific Fluidics & Optics (comprised of Eastern Plastics, Rheodyne, Sapphire
Engineering, Upchurch Scientific, ERC, CiDRA Precision Services, CVI Melles Griot, Semrock, and AT Films), Sealing Solutions
(comprised of Precision Polymer Engineering, FTL Seals Technology, Novotema, and SFC Koenig), Gast, Micropump, and Material
Processing Technologies (comprised of Quadro, Fitzpatrick, Microfluidics, and Matcon) platforms. The Fire & Safety/Diversified
Products segment is comprised of the Fire & Safety (comprised of Class 1, Hale, Akron Brass, AWG Fittings, Godiva, Dinglee,
Hurst Jaws of Life, Lukas, and Vetter), Band-It, and Dispensing platforms.
The Fluid & Metering Technologies segment designs, produces and distributes positive displacement pumps, flow meters,
valves, injectors, and other fluid-handling pump modules and systems and provides flow monitoring and other services for the
food, chemical, general industrial, water & wastewater, agriculture and energy industries. The Health & Science Technologies
segment designs, produces and distributes a wide range of precision fluidics, rotary lobe pumps, centrifugal and positive
displacement pumps, roll compaction and drying systems used in beverage, food processing, pharmaceutical and cosmetics,
pneumatic components and sealing solutions, including very high precision, low-flow rate pumping solutions required in
analytical instrumentation, clinical diagnostics and drug discovery, high performance molded and extruded, biocompatible
medical devices and implantables, air compressors used in medical, dental and industrial applications, optical components and
coatings for applications in the fields of scientific research, defense, biotechnology, life sciences, aerospace,
telecommunications and electronics manufacturing, laboratory and commercial equipment used in the production of micro and
nano scale materials, precision photonic solutions used in life sciences, research and defense markets, and precision gear and
peristaltic pump technologies that meet exacting original equipment manufacturer specifications. The Fire & Safety/Diversified
Products segment produces firefighting pumps and controls, valves, monitors, nozzles, rescue tools, lifting bags and other
components and systems for the fire and rescue industry, engineered stainless steel banding and clamping devices used in a
variety of industrial and commercial applications, and precision equipment for dispensing, metering and mixing colorants and
paints used in a variety of retail and commercial businesses around the world.
Our 2016 financial results were as follows:
•
Sales of $2.1 billion increased 5%, reflecting a 1% decrease in organic sales (excluding acquisitions, divestitures and
foreign currency translation), a 1% decrease due to foreign currency translation, and a 7% increase due to acquisitions/
divestitures.
•
Operating income of $405.8 million and operating margin of 19.2% were down 6% and 220 basis points, respectively,
from the prior year.
•
Net income decreased 4% to $271.1 million.
•
Diluted EPS of $3.53 decreased $0.09 or 2% compared to 2015.
Our 2016 financial results, adjusted for $3.7 million of restructuring costs, a $3.6 million pension settlement charge and a
$22.3 million loss on sale of businesses, compared to our 2015 financial results adjusted for $11.2 million of restructuring costs
and an $18.1 million gain on sale of a business are as follows (these non-GAAP measures have been reconciled to U.S. GAAP
measures in Item 6, “Selected Financial Data”):
•
Adjusted operating income of $435.3 million and adjusted operating margin of 20.6% were up 2% and down 40 basis
points, respectively, from the prior year.
23
•
Adjusted net income increased 4% to $288.4 million.
•
Adjusted EPS of $3.75 was 6% higher than prior year adjusted EPS of $3.55.
Overall, we remain cautious due to the uncertainty within the global economy and the global political environment and
project 1 to 2 percent organic growth in 2017. We expect to deliver full year 2017 EPS of $3.87 to $3.95.
Results of Operations
The following is a discussion and analysis of our results of operations for each of the three years in the period ended
December 31, 2016. For purposes of this Item, reference is made to the Consolidated Statements of Operations in Part II,
Item 8, “Financial Statements and Supplementary Data.” Segment operating income excludes unallocated corporate operating
expenses. Management’s primary measurements of segment performance are sales, operating income, and operating margin.
In the following discussion, and throughout this report, references to organic sales, a non-GAAP measure, refers to sales
from continuing operations calculated according to generally accepted accounting principles in the United States but excludes
(1) the impact of foreign currency translation and (2) sales from acquired or divested businesses during the first twelve months
of ownership or divestiture. The portion of sales attributable to foreign currency translation is calculated as the difference
between (a) the period-to-period change in organic sales and (b) the period-to-period change in organic sales after applying
prior period foreign exchange rates to the current year period. Management believes that reporting organic sales provides useful
information to investors by helping identify underlying growth trends in our business and facilitating easier comparisons of our
revenue performance with prior and future periods and to our peers. The Company excludes the effect of foreign currency
translation from organic sales because foreign currency translation is not under management’s control, is subject to volatility
and can obscure underlying business trends. The Company excludes the effect of acquisitions and divestitures because the
nature, size, and number of acquisitions and divestitures can vary dramatically from period to period and between the Company
and its peers and can also obscure underlying business trends and make comparisons of long-term performance difficult.
Performance in 2016 Compared with 2015
(In thousands)
2016
Net sales
Operating income
Operating margin
2015
$ 2,113,043
$ 2,020,668
405,801
431,738
19.2%
21.4%
Change
5%
(6)%
(220) bps
Sales in 2016 were $2.1 billion, a 5% increase from last year. This increase reflects a 1% decrease in organic sales, a 1%
decrease from foreign currency translation and a 7% increase from acquisitions/divestitures (Acquisitions: SFC Koenig September 2016; AWG Fittings - July 2016; Akron Brass - March 2016; CiDRA Precision Services - July 2015; Alfa Valvole June 2015 and Novotema - June 2015. Divestitures: CVI Korea - December 2016; IETG - October 2016; CVI Japan September 2016; Hydra-Stop - July 2016 and Ismatec - July 2015). Sales to customers outside the U.S. represented
approximately 50% of total sales in both 2016 and 2015.
In 2016, Fluid & Metering Technologies contributed 40% of sales and 44% of operating income; Health & Science
Technologies contributed 35% of sales and 31% of operating income; and Fire & Safety/Diversified Products contributed 25%
of sales and 25% of operating income.
Gross profit of $930.8 million in 2016 increased $26.5 million, or 3%, from 2015, while gross margin decreased 80 basis
points to 44.0% in 2016 from 44.8% in 2015. The increase in gross profit is primarily a result of increased sales volume as a
result of acquisitions, while the margin decrease is mainly attributable to $14.7 million of fair value inventory step up charges
from 2016 acquisitions compared to $3.4 million from 2015 acquisitions.
SG&A expenses increased to $499.0 million in 2016 from $479.4 million in 2015. The $19.6 million increase is mainly
attributable to $41.4 million of incremental costs from new acquisitions and $3.6 million of pension settlement charges in 2016,
partially offset by current year divestitures and cost savings from prior year restructuring actions. As a percentage of sales,
SG&A expenses were 23.6% for 2016 and 23.7% for 2015.
During 2016, the Company recorded a $22.3 million pre-tax loss on the sale of businesses related to the four divestitures
during the year (Hydra-Stop - July 2016; CVI Japan - September 2016; IETG - October 2016; and CVI Korea - December
2016), compared to the $18.1 million pre-tax gain on the sale of a business in 2015 (Ismatec - July 2015).
24
During 2016, the Company recorded pre-tax restructuring expenses totaling $3.7 million as part of initiatives that support
the implementation of key strategic efforts designed to facilitate long-term, sustainable growth through cost reduction actions
primarily consisting of employee reductions and facility rationalization. In 2015, the Company recorded $11.2 million of
restructuring expenses mainly attributable to employee severance from headcount reductions across all three segments and
corporate.
Operating income of $405.8 million in 2016 decreased from $431.7 million in 2015, primarily resulted from the impact of
the four divestitures in 2016 and the associated loss compared to the one divestiture in 2015 and the associated gain as well as
the $3.6 million pension settlement charge in 2016 and the incremental fair value inventory step-up charges related to the 2016
acquisitions, partially offset by the reversal of $4.7 million of contingent consideration related to a 2015 acquisition and lower
restructuring costs recorded in 2016 compared to 2015. Operating margin of 19.2% in 2016 was down 220 basis points from
21.4% in 2015 primarily due to the loss on the sale of businesses in 2016 compared to a gain on the sale of a business in 2015,
and the 2016 pension settlement, partially offset by productivity improvements and lower restructuring costs year over year.
Other (income) expense increased $6.1 million from income of $2.2 million in 2015 to income of $8.3 million in 2016
mainly due to $4.7 million of foreign currency transaction gains on intercompany loans that were established in conjunction
with the SFC Koenig acquisition.
Interest expense increased to $45.6 million in 2016 from $41.6 million in 2015. The increase was primarily due to the
$200 million series of Senior Notes issued in 2016 and higher borrowings outstanding on the Revolving Facility.
The provision for income taxes is based upon estimated annual tax rates for the year applied to federal, state and foreign
income. The provision for income taxes decreased to $97.4 million in 2016 compared to $109.5 million in 2015. The effective
tax rate decreased to 26.4% in 2016 compared to 27.9% in 2015, due to tax benefits on the divestitures of CVI Korea and CVI
Japan, certain return-to-provision adjustments and the early adoption of ASU 2016-09 and the related tax effects of share based
payments now recognized as a reduction to income tax expense. These adjustments were offset by the incurrence of additional
foreign withholding taxes, the prior year revaluation of the Italian deferred tax liability related to the reduction in the Italian
statutory tax rate and tax expense on the divestiture of the Hydra-Stop product line and the prior year divestiture of the Ismatec
product line as well as the mix of global pre-tax income among jurisdictions.
Net income for the year of $271.1 million decreased from the $282.8 million in 2015. Diluted earnings per share in 2016
of $3.53 decreased $0.09 from $3.62 in 2015.
Fluid & Metering Technologies Segment
(In thousands)
2016
Net sales
Operating income
Operating margin
2015
$ 849,101
$ 860,792
214,242
204,506
25.2%
23.8%
Change
(1)%
5%
140
bps
Sales of $849.1 million decreased $11.7 million, or 1%, in 2016 compared with 2015. This decrease reflected a 1%
decline in organic sales, a 1% increase from acquisitions (Alfa Valvole - June 2015) and 1% of unfavorable foreign currency
translation. In 2016, sales were flat domestically and decreased approximately 3% internationally. Sales to customers outside
the U.S. were approximately 44% of total segment sales in both 2016 and 2015.
Sales within our Energy platform increased compared to 2015 primarily due to strength within the aviation market,
partially offset by continued weakness in the propane and oil and gas markets as well as challenges in the mobile end market.
Sales within our Pumps platform (formerly Industrial) decreased compared to 2015 due to weakness in the North American
industrial distribution market. Sales within the Water platform decreased due to the divestitures of Hydra-Stop and IETG and
slowing demand in the chemical end market, partially offset by increased municipal spending. Sales within our Agriculture
platform increased year over year due to increased demand in the second half of 2016 from both OEMs and distributors in
anticipation of the 2017 planting season. Sales within the Valves platform, which was created in the third quarter of 2015,
increased as a result of the full year impact of the Alfa Valvole acquisition, offset by a challenging oil & gas market and overall
weakness in the European market.
Operating income and operating margin of $214.2 million and 25.2%, respectively, were higher than the $204.5 million
and 23.8%, respectively, recorded in 2015, primarily due to the full year impact of the Alfa Valvole acquisition as well as
productivity initiatives, partially offset by lower volume.
25
Health & Science Technologies Segment
(In thousands)
2016
Net sales
Operating income
Operating margin
2015
$ 744,809
$ 738,996
153,722
157,948
20.6%
21.4%
Change
1%
(3)%
(80)
bps
Sales of $744.8 million increased $5.8 million, or 1%, in 2016 compared with 2015. This increase reflected a 1%
decrease in organic sales, a 3% increase from acquisitions / divestitures (Acquisitions: SFC Koenig - September 2016; CiDRA
Precision Services - July 2015 and Novotema - May 2015. Divestitures: CVI Korea - December 2016 and CVI Japan September 2016) and 1% of unfavorable foreign currency translation. In 2016, sales decreased 1% domestically and increased
3% internationally. Sales to customers outside the U.S. were approximately 55% of total segment sales in both 2016 and 2015.
Sales within our Scientific Fluidics & Optics platform were down year over year due to a slowed demand in the industrial
and laser optics end markets as well as the impact of the CVI Japan and CVI Korea divestitures in 2016 and the Ismatec
divestiture in 2015 partially offset by strong demand in the core biotech and in-vitro diagnostic markets coupled with the full
year impact of the CiDRA Precision Services acquisition and a strong semiconductor market. Sales within our Material
Processing Technologies platform decreased compared to 2015 due to challenges in the North American markets which offset
strength in the European and Indian pharma markets. Sales within our Sealing Solutions platform increased compared to 2015
due to the full year impact of the Novotema acquisition in 2015, the 2016 acquisition of SFC Koenig and continued strength in
the semiconductor markets, partially offset by pressure in the oil & gas market. Sales in our Gast and Micropump platforms
decreased year over year due to continued softness in the North American industrial distribution markets.
Operating income and operating margin of $153.7 million and 20.6%, respectively, in 2016 were down from $157.9
million and 21.4%, respectively, in 2015, primarily due to the inventory step-up charges related to the SFC Koenig acquisition,
the incremental impact of divestitures, partially offset by volume increases.
Fire & Safety/Diversified Products Segment
(In thousands)
2016
Net sales
Operating income
Operating margin
$
520,009
$
121,888
23.4%
2015
423,915
115,745
27.3%
Change
23 %
5%
(390)
bps
Sales of $520.0 million increased $96.1 million, or 23%, in 2016 compared with 2015. This increase reflected a 3%
decline in organic sales, a 27% increase due to acquisitions (AWG Fittings - July 2016 and Akron Brass - March 2016) and 1%
of unfavorable foreign currency translation. In 2016, sales increased 28% domestically and 18% internationally. Sales to
customers outside the U.S. were approximately 51% of total segment sales in 2016 compared with 52% in 2015.
Sales within our Dispensing platform increased year over year due to a strong Asian market and the overall strength of the
X-Smart product sales, partially offset by the foreign currency impact caused by the strength of the U.S. dollar and challenges
within the European markets. Sales decreased in our Band-It platform compared to 2015 as a result of declines in the oil & gas
market, offset by strength in the transportation industry and the rebound of the European and Asian markets. Sales within our
Fire & Safety platform increased compared to 2015 primarily due to the Akron Brass and AWG Fittings acquisitions as well as
increased sales due to new product development, partially offset by project delays in Asia and large projects in Europe in 2015
which did not reoccur.
Operating income of $121.9 million was higher than the $115.7 million in 2015, while operating margin of 23.4% was
lower than the 27.3% in 2015, primarily due to the dilutive impact of acquisitions on margins and the inventory step-up charges
related to the Akron Brass and AWG Fittings acquisitions. The higher operating income is primarily related to the impact of
2016 acquisitions.
26
Performance in 2015 Compared with 2014
(In thousands)
2015
Net sales
Operating income
Operating margin
$
2014
2,020,668
$
431,738
21.4%
2,147,767
431,224
20.1%
Change
(6)%
—%
130
bps
Sales in 2015 were $2.0 billion, a 6% decrease from 2014. This decrease reflects a 4% decrease in organic sales, a 4%
decrease from foreign currency translation and a 2% increase from acquisitions (CiDRA Precision Services — July 2015; Alfa
Valvole — June 2015; Novotema — May 2015 and Aegis — April 2014). Sales to customers outside the U.S. represented
approximately 50% of total sales in both 2015 and 2014.
In 2015, Fluid & Metering Technologies contributed 43% of sales and 43% of operating income; Health & Science
Technologies contributed 36% of sales and 33% of operating income; and Fire & Safety/Diversified Products contributed 21%
of sales and 24% of operating income.
Gross profit of $904.3 million in 2015 decreased $45.0 million, or 5%, from 2014, while gross margins increased 60 basis
points to 44.8% in 2015 from 44.2% in 2014. The margin increase is mainly attributable to benefits from productivity
initiatives, partially offset by decreased sales volume.
SG&A expenses decreased to $479.4 million in 2015 from $504.4 million in 2014. The $25.0 million decrease is mainly
attributable to a reduction in volume-related expenses of $35.1 million, partially offset by approximately $10.1 million of
incremental costs from new acquisitions. As a percentage of sales, SG&A expenses were 23.7% for 2015 and 23.5% for 2014.
During 2015, the Company recorded pre-tax restructuring expenses totaling $11.2 million compared to $13.7 million
recorded in 2014. The restructuring expenses for both years were mainly attributable to employee severance related to head
count reductions across all three segments and corporate.
Operating income of $431.7 million in 2015 increased slightly from the $431.2 million recorded in 2014, primarily
reflecting improved productivity offset by decreased volumes. Operating margin of 21.4% in 2015 was up 130 basis points
from 20.1% in 2014 primarily due to the gain on the sale of the Ismatec product line and productivity improvements.
Other (income) expense decreased $0.9 million from other income of $3.1 million in 2014 to $2.2 million of income in
2015 mainly due to mark-to-market gains in available for sale securities in 2014 compared to losses in 2015.
Interest expense decreased slightly to $41.6 million in 2015 from $41.9 million in 2014. The decrease was primarily due
to the maturation of the 2.58% Senior Euro Notes, partially offset by a higher balance on the Revolving Facility.
The provision for income taxes is based upon estimated annual tax rates for the year applied to federal, state and foreign
income. The provision for income taxes decreased to $109.5 million in 2015 compared to $113.1 million in 2014. The effective
tax rate decreased to 27.9% in 2015 compared to 28.8% in 2014, due to the revaluation of the Italian deferred tax liability
related to the reduction in the Italian statutory tax rate, the disposition of the Ismatec product line and the mix of global pre-tax
income among jurisdictions.
Net income for the year of $282.8 million increased from the $279.4 million earned in 2014. Diluted earnings per share in
2015 of $3.62 increased $0.17 from $3.45 in 2014.
Fluid & Metering Technologies Segment
(In thousands)
2015
Net sales
Operating income
Operating margin
$
860,792
204,506
23.8%
2014
$
899,588
216,886
24.1%
Change
(4)%
(6)%
(30)
bps
Sales of $860.8 million decreased $38.8 million, or 4%, in 2015 compared with 2014. This decrease reflected a 2%
decline in organic sales, a 2% increase from acquisitions (Alfa Valvole — June 2015 and Aegis — April 2014) and 4% of
unfavorable foreign currency translation. In 2015, sales decreased approximately 3% domestically and 5% internationally. Sales
to customers outside the U.S. were approximately 44% of total segment sales in 2015, compared with 45% in 2014.
27
Sales within our Energy platform decreased compared to 2014 primarily due to the fall in oil prices and the related delay
in large capital projects in Europe and the Middle East. Sales within our Pumps platform (formerly Industrial) similarly
decreased compared to 2014 due to the fall in oil & gas prices, but also due to the weakening of the North American industrial
distribution market. This decrease was partially offset by an increase in European chemical project activity. Sales within our
Agriculture platform decreased as OEM and after-market distribution sales fell significantly due to depressed commodity prices
and lower farm incomes. The slight sales decrease in the Water platform was driven by weakness in North American industrial
markets, offset by growth in the global municipal markets and share gains from new products. Sales in the Valves platform,
which was created in the third quarter of 2015, increased as a result of the Alfa acquisition.
Operating income and operating margin of $204.5 million and 23.8%; respectively, were lower than the $216.9 million
and 24.1%; respectively, recorded in 2014, primarily due to the lower sales volume.
Health & Science Technologies Segment
(In thousands)
Net sales
Operating income (loss)
Operating margin
2015
$
738,996
$
157,948
21.4%
2014
752,021
152,999
20.3%
Change
(2)%
3%
110
bps
Sales of $739.0 million decreased $13.0 million, or 2%, in 2015 compared with 2014. This decrease reflected a 1%
decline in organic sales, a 2% increase from acquisitions (CiDRA Precision Services — July 2015 and Novotema — May 2015)
and 3% unfavorable foreign currency translation. In 2015, sales decreased 3% domestically and 1% internationally. Sales to
customers outside the U.S. were approximately 55% of total segment sales in 2015 compared with 54% in 2014.
Sales within our Scientific Fluidics & Optics platform increased as demand from the core biotech, in-vitro diagnostic and
analytical instrumentation markets grew and remained consistently strong through the year, partially offset by from slow
demand in the industrial and laser optical end markets. Sales within our Material Processing Technologies platform decreased
compared to 2014 due to softer orders in the first half of the year, as general spending on large capital projects declined. Sales
within our Sealing Solutions platform increased compared to 2014 due to the acquisition of Novotema and strong growth in the
semiconductor markets, partially offset by declines in the oil & gas market. Sales in our Gast platform decreased compared to
2014 due to softness in North American industrial distribution markets. Sales in our Micropump platform decreased compared
to 2014 due to softness in Asian printing markets, and declines in the North American industrial distribution market.
Operating income and operating margin of $157.9 million and 21.4%, respectively, in 2015 were up from $153.0 million
and 20.3%, respectively, recorded in 2014, primarily due to productivity initiatives, partially offset by lower volume.
Fire & Safety/Diversified Products Segment
(In thousands)
Net sales
Operating income
Operating margin
2015
$
423,915
$
115,745
27.3%
2014
502,749
130,494
26.0%
Change
(16)%
(11)%
130
bps
Sales of $423.9 million decreased $78.8 million, or 16%, in 2015 compared with 2014. This decrease reflected a 10%
decline in organic sales and 6% unfavorable foreign currency translation. In 2015, sales decreased 12% domestically and 19%
internationally. Sales to customers outside the U.S. were approximately 52% of total segment sales in 2015, compared with
54% in 2014.
Sales within our Dispensing platform decreased due to the benefit of large projects in the first half of the prior year and
softness in Asian markets. The sales decrease in our Band-It platform was driven by the decline of upstream oil & gas sales, due
to depressed prices, slightly offset by continued strength in the North American transportation markets. Sales within our Fire &
Safety platform decreased due to prior year trailer sales for North American power production facilities, a lack of project orders
in China and North America, and continued decision delays on municipal projects in Europe and Asia.
Operating income of $115.7 million was lower than the $130.5 million recorded in 2014, while operating margin of
27.3% was higher than the 26.0% recorded in 2014, primarily due to favorable mix within the Dispensing platform along with
productivity improvements across the entire segment, partially offset by lower volume.
28
Liquidity and Capital Resources
Operating Activities
Cash flows from operating activities increased $39.6 million, or 11.0%, to $399.9 million in 2016, primarily due to the
impact of current year acquisitions, lower bonus payments, early adoption of ASU 2016-09, and improved operating working
capital performance, partially offset by higher prepaid income taxes in 2016. At December 31, 2016, working capital was
$513.6 million and the Company’s current ratio was 2.66 to 1. At December 31, 2016, the Company’s cash and cash equivalents
totaled $236.0 million, of which $190.3 million was held outside of the United States.
Investing Activities
Cash flows used in investing activities increased $298.7 million to $509.2 million in 2016, primarily as a result of an
additional $315.0 million of cash paid for acquisitions, partially offset by $11.4 million of higher proceeds from the sale of
businesses and $5.5 million of lower capital expenditures.
Cash flows from operations were more than adequate to fund capital expenditures of $38.2 million and $43.8 million in
2016 and 2015, respectively. Capital expenditures were generally for machinery and equipment that improved productivity,
although a portion was for business system technology, replacement of equipment, and construction of new facilities.
Management believes that the Company has ample capacity in its plants and equipment to meet demand increases for future
growth in the intermediate term.
The Company acquired Akron Brass in March 2016 for cash consideration of $221.4 million; AWG Fittings in July 2016
for cash consideration of $47.5 million (€42.8 million); and SFC Koenig in September 2016 for cash consideration of $241.1
million (€215.9 million). The purchase prices for the 2016 acquisitions were funded with both cash on hand and borrowings
under the Company’s revolving facilities. The Company acquired Novotema in May 2015 for cash consideration of $61.1
million (€56 million); Alfa Valvole in June 2015 for cash consideration of $112.6 million (€99.8 million); and CPS in July 2015
for cash consideration of $19.5 million and non-cash contingent consideration valued at $4.7 million. The entire purchase price
for all of the 2015 acquisitions was funded with cash on hand.
Financing Activities
Cash flows from financing activities increased from $295.5 million of cash used in financing activities in 2015 to $46.5
million of cash provided by financing activities in 2016, primarily as a result of the Company paying off the $88.4 million
balance on the 2.58% Senior Euro Notes in 2015, a reduction of $153.6 million of purchases of common stock in 2016, and the
issuance of $200 million of Senior Notes in 2016.
On June 13, 2016, the Company completed a private placement of $100 million aggregate principal amount of 3.20% Senior
Notes due June 13, 2023 and $100 million aggregate principal amount of 3.37% Senior Notes due June 13, 2025 (collectively, the
“Notes”) pursuant to a Note Purchase Agreement, dated June 13, 2016 (the “Purchase Agreement”). Each series of Notes bears
interest at the stated amount per annum, which is payable semi-annually in arrears on each June 13th and December 13th. The Notes
are unsecured obligations of the Company and rank pari passu in right of payment with all of the Company’s other unsecured,
unsubordinated debt. The Company may at any time prepay all, or any portion of the Notes; provided that such portion is greater
than 5% of the aggregate principal amount of Notes then outstanding. In the event of a prepayment, the Company will pay an
amount equal to par plus accrued interest plus a make-whole amount. In addition, the Company may repurchase the Notes by
making an offer to all holders of the Notes, subject to certain conditions.
The Company maintains a revolving credit facility (the “Revolving Facility”), which is a $700.0 million unsecured,
multi-currency bank credit facility expiring on June 23, 2020. At December 31, 2016, there was $169.6 million outstanding
under the Revolving Facility and $9.2 million of outstanding letters of credit, resulting in a net available borrowing capacity
under the Revolving Facility at December 31, 2016 of $521.2 million. Borrowings under the Revolving Facility bear interest, at
either an alternate base rate or an adjusted LIBOR rate plus, in each case, an applicable margin. This applicable margin is based
on the Company’s senior, unsecured, long-term debt rating and can range from .005% to 1.50%. Based on the Company’s credit
rating at December 31, 2016, the applicable margin was 1.10%, resulting in a weighted average interest rate of 1.50% at
December 31, 2016. Interest is payable (a) in the case of base rate loans, quarterly, and (b) in the case of LIBOR rate loans, on
the maturity date of the borrowing, or quarterly from the effective date for borrowings exceeding three months. The Company
may request increases in the lending commitments under the Credit Agreement, but the aggregate lending commitments
pursuant to such increases may not exceed $350.0 million. An annual Revolving Facility fee, also based on the Company’s
credit rating, is currently 15 basis points and is payable quarterly.
On June 9, 2015, the Company paid the balance of the 2.58% Senior Euro Notes, upon its maturity, using cash on hand.
29
On December 9, 2011, the Company completed a public offering of $350.0 million 4.2% senior notes due December 15,
2021 (“4.2% Senior Notes”). The net proceeds from the offering of $346.2 million, after deducting a $0.9 million issuance
discount, a $2.3 million underwriting commission and $0.6 million offering expenses, were used to repay $306.0 million of
outstanding bank indebtedness, with the balance used for general corporate purposes. The 4.2% Senior Notes bear interest at a
rate of 4.2% per annum, which is payable semi-annually in arrears on each June 15 and December 15. The Company may
redeem all or part of the 4.2% Senior Notes at any time prior to maturity at the redemption prices set forth in the Note Indenture
governing the 4.2% Senior Notes. The Company may issue additional debt from time to time pursuant to the Indenture. The
Indenture and 4.2% Senior Notes contain covenants that limit the Company’s ability to, among other things, incur certain liens
securing indebtedness, engage in certain sale-leaseback transactions, and enter into certain consolidations, mergers,
conveyances, transfers or leases of all or substantially all the Company’s assets. The terms of the 4.2% Senior Notes also
require the Company to make an offer to repurchase the 4.2% Senior Notes upon a change of control triggering event (as
defined in the Indenture) at a price equal to 101% of their principal amount plus accrued and unpaid interest, if any.
On December 6, 2010, the Company completed a public offering of $300.0 million 4.5% senior notes due December 15,
2020 (“4.5% Senior Notes”). The net proceeds from the offering of $295.7 million, after deducting a $1.6 million issuance
discount, a $1.9 million underwriting commission and $0.8 million offering expenses, were used to repay $250.0 million of
outstanding bank indebtedness, with the balance used for general corporate purposes. The 4.5% Senior Notes bear interest at a
rate of 4.5% per annum, which is payable semi-annually in arrears on each June 15 and December 15. The Company may
redeem all or a portion of the 4.5% Senior Notes at any time prior to maturity at the redemption prices set forth in the Note
Indenture governing the 4.5% Senior Notes. The Company may issue additional debt from time to time pursuant to the
Indenture. The Indenture and 4.5% Senior Notes contain covenants that limit the Company’s ability to, among other things,
incur certain liens securing indebtedness, engage in certain sale-leaseback transactions, and enter into certain consolidations,
mergers, conveyances, transfers or leases of all or substantially all the Company’s assets. The terms of the 4.5% Senior Notes
also require the Company to make an offer to repurchase the 4.5% Senior Notes upon a change of control triggering event (as
defined in the Indenture) at a price equal to 101% of their principal amount plus accrued and unpaid interest, if any.
There are two key financial covenants that the Company is required to maintain in connection with the Revolving Facility
and the Notes, a minimum interest coverage ratio of 3.0 to 1 and a maximum leverage ratio of 3.50 to 1. At December 31, 2016,
the Company was in compliance with both of these financial covenants, as the Company’s interest coverage ratio was 11.51 to 1
and the leverage ratio was 1.91 to 1. There are no financial covenants relating to the 4.5% Senior Notes or 4.2% Senior Notes;
however, both are subject to cross-default provisions.
On December 1, 2015 the Company’s Board of Directors approved an increase of $300.0 million in the authorized level
for repurchases of common stock. Repurchases under the program will be funded with future cash flow generation or
borrowings available under the Revolving Facility. During 2016, the Company purchased a total of 0.7 million shares at a cost
of $55.0 million compared to 2.8 million shares purchased in 2015 at a cost of $210.5 million, of which $2.3 million was settled
in January 2016. As of December 31, 2016, there was $580 million of repurchase authorization remaining.
The Company believes current cash, cash from operations and cash available under the Revolving Facility will be
sufficient to meet its operating cash requirements, planned capital expenditures, interest and principal payments on all
borrowings, pension and postretirement funding requirements, authorized share repurchases and annual dividend payments to
holders of the Company’s common stock for the next twelve months. Additionally, in the event that suitable businesses are
available for acquisition upon acceptable terms, the Company may obtain all or a portion of the financing for these acquisitions
through the incurrence of additional borrowings. As of December 31, 2016, $169.6 million was outstanding under the
Revolving Facility, with $9.2 million of outstanding letters of credit, resulting in net available borrowing capacity under the
Revolving Facility at December 31, 2016 of approximately $521.2 million.
Contractual Obligations
Our contractual obligations include pension and postretirement medical benefit plans, rental payments under operating
leases, payments under capital leases, and other long-term obligations arising in the ordinary course of business. There are no
identifiable events or uncertainties, including the lowering of our credit rating, which would accelerate payment or maturity of
any of these commitments or obligations.
The following table summarizes our significant contractual obligations and commercial commitments at December 31,
2016, and the future periods in which such obligations are expected to be settled in cash. In addition, the table reflects the
timing of principal and interest payments on outstanding borrowings. Additional detail regarding these obligations is provided
in the Notes to Consolidated Financial Statements in Part II, Item 8, “Financial Statements and Supplementary Data.”
30
Payments Due by Period
Less
Than
1 Year
Total
1-3
Years
More
Than
5 Years
3-5
Years
(In thousands)
(1)
Borrowings
Operating lease obligations
$
Capital lease obligations (2)
Purchase obligations (3)
Pension and post-retirement obligations
Total contractual obligations (4)
$
1,209,173
73,157
1,307
114,103
108,761
1,506,501
$
38,408
16,923
1,055
108,994
14,394
179,774
$
$
$
76,816
23,759
252
3,573
20,897
125,297
$
$
877,354
13,369
—
518
21,420
912,661
$
$
216,595
19,106
—
1,018
52,050
288,769
(1) Includes interest payments based on contractual terms and current interest rates for variable debt.
(2) Consists primarily of tangible personal property leases.
(3) Consists primarily of inventory commitments.
(4) Comprises liabilities recorded on the balance sheet of $1,110.5 million, and obligations not recorded on the balance
sheet of $396.0 million.
Critical Accounting Policies
We believe that the application of the following accounting policies, which are important to our financial position and results
of operations, require significant judgments and estimates on the part of management. For a summary of all of our accounting
policies, including the accounting policies discussed below, see Note 1 of the Notes to Consolidated Financial Statements in Part II,
Item 8, “Financial Statements and Supplementary Data.”
Revenue recognition — The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has
occurred, the sales price is fixed or determinable, and collectability of the sales price is reasonably assured. For product sales,
delivery does not occur until the products have been shipped and risk of loss has been transferred to the customer. Revenue from
services is recognized when the services are provided or ratably over the contract term. Some arrangements with customers may
include multiple deliverables, including the combination of products and services. In such cases, the Company has identified these
as separate elements in accordance with ASC 605-25, Revenue Recognition-Multiple-Element Arrangements, and recognizes
revenue consistent with the policy for each separate element based on the relative selling price method. Revenues from certain
long-term contracts are recognized on the percentage-of-completion method. Percentage-of-completion is measured principally
by the percentage of costs incurred to date for each contract to the estimated total costs for such contract at completion. Provisions
for estimated losses on uncompleted long-term contracts are made in the period in which such losses are determined. Due to
uncertainties inherent in the estimation process, it is reasonably possible that completion costs, including those arising from contract
penalty provisions and final contract settlements, will be revised in the near-term. Such revisions to costs and income are recognized
in the period in which the revisions are determined.
The Company records allowances for discounts, product returns and customer incentives at the time of sale as a reduction
of revenue as such allowances can be reliably estimated based on historical experience and known trends. The Company also offers
product warranties and accrues its estimated exposure for warranty claims at the time of sale based upon the length of the warranty
period, warranty costs incurred and any other related information known to the Company.
Goodwill, long-lived and intangible assets — The Company evaluates the recoverability of certain noncurrent assets utilizing
various estimation processes. An impairment of a long-lived asset exists when the asset’s carrying amount exceeds its fair value,
and is recorded when the carrying amount is not recoverable through future operations. An impairment of an indefinite-lived
intangible asset or goodwill exists when the carrying amount of the intangible asset or goodwill exceeds its fair value. Assessments
of possible impairments of long-lived or indefinite-lived intangible assets or goodwill are made if an event occurs or circumstances
change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Additionally, testing
for possible impairments of recorded indefinite-lived intangible asset balances and goodwill is performed annually. On October 31,
or more frequently if triggering events occur, the Company compares the fair value of its reporting units to the carrying value of
each reporting unit to determine if a goodwill impairment exists. The amount and timing of impairment charges for these assets
require the estimation of future cash flows to determine the fair value of the related assets. In 2016 and 2015, the Company
concluded that certain long-lived assets had a fair value that was less than the carrying value of the assets, resulting in $0.2 million
and $0.8 million, respectively, of long-lived asset impairment charges.
31
The Company’s business acquisitions result in recording goodwill and other intangible assets, which affect the amount of
amortization expense and possible impairment expense that the Company will incur in future periods. The Company follows the
guidance prescribed in ASC 350, Goodwill and Other Intangible Assets, to test goodwill and intangible assets for impairment. The
Company determines the fair value of each reporting unit utilizing an income approach (discounted cash flows) weighted 50%
and a market approach (consisting of a comparable public company multiples methodology) weighted 50%. To determine the
reasonableness of the calculated fair values, the Company reviews the assumptions to ensure that neither the income approach nor
the market approach yielded significantly different valuations.
The key assumptions are updated every year for each reporting unit for the income and market approaches used to determine
fair value. Various assumptions are utilized including forecasted operating results, annual operating plans, strategic plans, economic
projections, anticipated future cash flows, the weighted average cost of capital, market data and market multiples. The assumptions
that have the most significant effect on the fair value calculations are the weighted average cost of capital, market multiples,
forecasted EBITDA, and terminal growth rates. The 2016 and 2015 ranges for these three assumptions utilized by the Company
are as follows:
Assumptions
Weighted average cost of capital
Market multiples
Terminal growth rates
2016
Range
2015
Range
9.0% to 12.0%
9.5x to 17.5x
9.5% to 13.0%
7.5x to 14.0x
3.0% to 3.5%
3.0% to 3.5%
In assessing the fair value of the reporting units, the Company considers both the market approach and the income approach.
Under the market approach, the fair value of the reporting unit is determined by the respective trailing twelve month EBITDA and
the forward looking 2017 EBITDA (generally 50% each), based on multiples of comparable public companies. The market approach
is dependent on a number of significant management assumptions including forecasted EBITDA and selected market multiples.
Under the income approach, the fair value of the reporting unit is determined based on the present value of estimated future cash
flows. The income approach is dependent on a number of significant management assumptions including estimates of operating
results, capital expenditures, net working capital requirements, long-term growth rates and discount rates. Weighting was equally
attributed to both the market and income approaches (50% each) in arriving at the fair value of the reporting units.
In addition to performing our annual impairment test, we also performed interim impairment tests due to the divestitures in
the third and fourth quarters of 2016 as well as the reorganization of certain reporting units. As a result of these impairment tests,
the Company concluded that the reporting units had fair values in excess of their carrying values.
The Banjo trade name is an indefinite-lived intangible asset which is tested for impairment on an annual basis in accordance
with ASC 350 or more frequently if events or changes in circumstances indicate that the asset might be impaired. The Company
uses the relief-from-royalty method, a form of the income approach. The relief-from-royalty method is dependent on a number of
significant management assumptions, including estimates of revenues, royalty rates and discount rates.
The Akron Brass trade name is an indefinite-lived intangible asset that was acquired as a result of the Akron Brass acquisition
in March 2016 and is tested for impairment on an annual basis in accordance with ASC 350 or more frequently if events or changes
in circumstances indicate that the asset might be impaired. The Company uses the relief-from-royalty method, a form of the income
approach. The relief-from-royalty method is dependent on a number of significant management assumptions, including estimates
of revenues, royalty rates and discount rates.
In 2016 and 2015, there were no triggering events or changes in circumstances that would have required a review other than
as of our annual test date. Based on the results of our measurement as of October 31, 2016, the fair value of the Banjo trade name
was more than 25% in excess of the carrying value and the fair value of the Akron Brass trade name was near its carrying value
as a result of the acquisition of this business in March 2016.
Defined benefit retirement plans — The plan obligations and related assets of the defined benefit retirement plans are presented
in Note 15 of the Notes to Consolidated Financial Statements in Part II, Item 8, “Financial Statements and Supplementary Data.”
Level 1 assets are valued using unadjusted quoted prices for identical assets in active markets. Level 2 assets are valued using
quoted prices or other observable inputs for similar assets. Level 3 assets are valued using unobservable inputs, but reflect the
assumptions market participants would use in pricing the assets. Plan obligations and the annual pension expense are determined
by consulting with actuaries using a number of assumptions provided by the Company. Key assumptions in the determination of
the annual pension expense include the discount rate, the rate of salary increases, and the estimated future return on plan assets.
To the extent actual amounts differ from these assumptions and estimated amounts, results could be adversely affected.
32
The Society of Actuaries releases annual updates to mortality tables, which update life expectancy assumptions. IDEX adopts
these annual updates and, in consideration of these tables, we modified the mortality assumptions used in determining our pension
and post-retirement benefit obligations as of December 31, 2016, which will have a related impact on our annual benefit expense
in future years. New mortality tables may result in additional funding requirements dependent upon the funded status of our plans.
These expectations presume all other assumptions remain constant and there are no changes to applicable funding regulations.
Changes in the discount rate assumptions will impact the (gain) loss amortization and interest cost components of the projected
benefit obligation (“PBO”), which in turn, may impact the Company’s funding decisions if the PBO exceeds plan assets. Each
100 basis point increase in the discount rate will cause a corresponding decrease in the PBO of approximately $27 million based
upon the December 31, 2016 data. Each 100 basis point decrease in the discount rate will cause a corresponding increase in the
PBO of approximately $33 million based upon the December 31, 2016 data.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk.
The Company is subject to market risk associated with changes in foreign currency exchange rates and interest rates. The
Company may, from time to time, enter into foreign currency forward contracts and interest rate swaps on its debt when it
believes there is a financial advantage in doing so. A treasury risk management policy, adopted by the Board of Directors,
describes the procedures and controls over derivative financial and commodity instruments, including foreign currency forward
contracts and interest rate swaps. Under the policy, the Company does not use financial or commodity derivative instruments
for trading purposes, and the use of these instruments is subject to strict approvals by senior officers. Typically, the use of
derivative instruments is limited to foreign currency forward contracts and interest rate swaps on the Company’s outstanding
long-term debt.
Foreign Currency Exchange Rates
The Company’s foreign currency exchange rate risk is limited principally to the Euro, Swiss Franc, British Pound,
Canadian Dollar, Indian Rupee and Chinese Renminbi. The Company manages its foreign exchange risk principally through
invoicing customers in the same currency as the source of products. The foreign currency transaction (gains) losses for the years
ending December 31, 2016, 2015 and 2014 were $(6.2) million, $(0.1) million, and $0.9 million, respectively, and are reported
within Other (income) expense-net on the Consolidated Statements of Operations.
Interest Rate Fluctuations
The Company’s interest rate exposure is primarily related to its $1,020.9 million of total debt outstanding at
December 31, 2016. Approximately 17% of the debt is priced at interest rates that float with the market. A 50 basis point
movement in the interest rate on the floating rate debt would result in an approximate $0.8 million annualized increase or
decrease in interest expense and cash flows. The remaining debt is fixed rate debt.
33
Item 8.
Financial Statements and Supplementary Data.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over financial reporting.
Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally
accepted in the United States of America, and as defined in Exchange Act Rule 13a-15(f).
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives
because of its inherent limitations. Because of such limitations, there is a risk that material misstatements may not be prevented
or detected on a timely basis by internal control over financial reporting.
Management has used the framework set forth in the report entitled “Internal Control — Integrated Framework” (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission to assess the effectiveness of the
Company’s internal control over financial reporting. Based on that assessment, management has concluded that the Company’s
internal control over financial reporting was effective as of December 31, 2016.
The Company completed the acquisitions of Akron Brass Holding Corporation in March 2016, AWG Fittings GmbH in
July 2016 and SFC Koenig AG in August 2016. Due to the timing of the acquisitions, management has excluded these
acquisitions from our evaluation of effectiveness of internal controls over financial reporting. This exclusion represented 6.3%
of net sales and 19.4% of total assets of the Company for the year ended December 31, 2016. The effectiveness of the
Company’s internal control over financial reporting as of December 31, 2016, has been audited by Deloitte & Touche LLP, an
independent registered public accounting firm, as stated in their report which appears herein.
34
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of IDEX Corporation
We have audited the internal control over financial reporting of IDEX Corporation and subsidiaries (the “Company”) as of
December 31, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission. As described in Management’s Report on Internal Control Over
Financial Reporting, management excluded from its assessment the internal control over financial reporting at Akron Brass
Holding Corporation, which was acquired in March 2016; AWG Fittings GmbH, which was acquired in July 2016; and SFC
Koenig AG, which was acquired in August 2016. These exclusions collectively represented 6.3% of net sales and 19.4% of total
assets of the Company for the year ended December 31, 2016. Accordingly, our audit did not include the internal control over
financial reporting at Akron Brass Holding Corporation, AWG Fittings GmbH, and SFC Koenig AG. The Company's
management is responsible for maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal
Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial
reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's
principal executive and principal financial officers, or persons performing similar functions, and effected by the company's
board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of
the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that
could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper
management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely
basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2016, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated financial statements as of and for the year ended December 31, 2016 of the Company and our report dated
February 23, 2017 expressed an unqualified opinion on those financial statements.
/s/
DELOITTE & TOUCHE LLP
Chicago, Illinois
February 23, 2017
35
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of IDEX Corporation
We have audited the accompanying consolidated balance sheets of IDEX Corporation and subsidiaries (the "Company") as of
December 31, 2016 and 2015, and the related consolidated statements of operations, comprehensive income, shareholders'
equity, and cash flows for each of the three years in the period ended December 31, 2016. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements based on
our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of IDEX
Corporation and subsidiaries as of December 31, 2016 and 2015, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2016, in conformity with accounting principles generally accepted in
the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
Company's internal control over financial reporting as of December 31, 2016, based on the criteria established in Internal
Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission,
and our report dated February 23, 2017 expressed an unqualified opinion on the Company's internal control over financial
reporting.
/s/
DELOITTE & TOUCHE LLP
Chicago, Illinois
February 23, 2017
36
IDEX CORPORATION
CONSOLIDATED BALANCE SHEETS
As of December 31,
2016
2015
(In thousands except share and
per share amounts)
ASSETS
Current assets
Cash and cash equivalents
Receivables — net
Inventories
Other current assets
Total current assets
Property, plant and equipment — net
Goodwill
Intangible assets — net
Other noncurrent assets
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Trade accounts payable
Accrued expenses
Short-term borrowings
Dividends payable
Total current liabilities
Long-term borrowings
Deferred income taxes
Other noncurrent liabilities
Total liabilities
Commitments and contingencies (Note 8)
Shareholders’ equity
Preferred stock:
Authorized: 5,000,000 shares, $.01 per share par value; Issued: none
Common stock:
Authorized: 150,000,000 shares, $.01 per share par value; Issued: 90,200,951 shares at
December 31, 2016 and 90,151,131 shares at December 31, 2015
Additional paid-in capital
Retained earnings
Treasury stock at cost: 13,760,266 shares at December 31, 2016 and 13,616,592 shares at
December 31, 2015
Accumulated other comprehensive loss
Total shareholders’ equity
Total liabilities and shareholders’ equity
See Notes to Consolidated Financial Statements.
37
$
$
$
235,964
272,813
252,859
61,085
822,721
247,816
1,632,592
435,504
16,311
3,154,944
$
128,933
152,852
1,046
26,327
309,158
1,014,235
166,427
121,230
1,611,050
$
$
128,911
153,672
1,087
25,927
309,597
839,707
110,483
102,365
1,362,152
—
—
902
697,213
1,834,739
902
679,623
1,666,680
(787,307)
(201,653)
$
328,018
260,000
239,124
35,542
862,684
240,945
1,396,529
287,837
17,448
2,805,443
1,543,894
3,154,944
(757,416)
(146,498)
$
1,443,291
2,805,443
IDEX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31,
2016
2015
2014
(In thousands except per share amounts)
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Loss (gain) on sale of businesses - net
Restructuring expenses
Operating income
Other (income) expense - net
Interest expense
Income before income taxes
Provision for income taxes
Net income
Earnings per common share:
Basic earnings per common share
Diluted earnings per common share
Share data:
Basic weighted average common shares outstanding
Diluted weighted average common shares outstanding
$
2,113,043 $
1,182,276
930,767
498,994
22,298
3,674
405,801
(8,327)
11,239
431,738
(2,243)
2,147,767
1,198,452
949,315
504,419
—
13,672
431,224
(3,111)
$
41,895
392,440
113,054
279,386
$
$
3.48
3.45
$
45,616
368,512
97,403
271,109
$
41,636
392,345
109,538
282,807
$
$
3.57
3.53
$
$
3.65
3.62
75,803
76,758
See Notes to Consolidated Financial Statements.
38
2,020,668 $
1,116,353
904,315
479,408
(18,070)
77,126
77,972
79,715
80,728
IDEX CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Years Ended December 31,
2016
2015
2014
(In thousands)
Net income
$
Other comprehensive income (loss)
Reclassification adjustments for derivatives, net of tax
Pension and other postretirement adjustments, net of tax
Foreign currency translation adjustments
Cumulative translation adjustment
Reclassification of foreign currency translation to earnings upon sale
of businesses
Other comprehensive income (loss)
Comprehensive income
$
271,109
282,807
$
279,386
4,361
3,049
4,531
9,415
4,510
(16,459)
(76,822)
(63,441)
(77,024)
14,257
(55,155)
(4,725)
(54,220)
—
(88,973)
215,954
See Notes to Consolidated Financial Statements.
39
$
$
228,587
$
190,413
IDEX CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Accumulated Other Comprehensive
Income (Loss)
Common
Stock and
Additional
PaidIn Capital
Cumulative
Translation
Adjustment
Retained
Earnings
Retirement
Benefits
Adjustments
Cumulative
Unrealized
Gain (Loss)
on
Derivatives
Treasury
Stock
Total
Shareholders’
Equity
(In thousands except share and per share amounts)
Balance, December 31, 2013
$
Net income
Cumulative translation adjustment
Net change in retirement obligations (net
of tax benefit of $6,852)
Net change on derivatives designated as
cash flow hedges (net of tax of $2,713)
Issuance of 571,751 shares of common
stock from issuance of unvested shares,
exercise of stock options and deferred
compensation plans (net of tax of $3,425)
Repurchase of 2,970,461 shares of
common stock
Share-based compensation
Unvested shares surrendered for tax
withholding
Cash dividends declared — $1.12 per
common share outstanding
Balance, December 31, 2014
—
—
—
—
—
—
23,195
—
16,598
—
—
$
Net change on derivatives designated as
cash flow hedges (net of tax of $2,499)
Issuance of 685,501 shares of common
stock from issuance of unvested shares,
exercise of stock options and deferred
compensation plans (net of tax of $3,794)
Repurchase of 2,811,002 shares of
common stock
$
52,211 $
—
(77,024)
(23,857) $
—
—
(16,459)
(31,659) $ (326,104) $
—
—
—
—
—
—
(16,459)
—
4,510
—
4,510
—
—
—
—
23,195
—
—
—
—
—
—
—
—
(222,487)
(89,305)
$
—
—
(24,813) $
—
(68,166)
(40,316) $
—
—
—
—
(4,952)
—
(27,149) $ (553,543) $
—
—
—
—
(222,487)
16,598
(4,952)
(89,305)
$ 1,483,821
282,807
—
—
—
—
9,415
—
—
9,415
—
—
—
—
4,531
—
4,531
14,545
—
—
—
—
9,937
24,482
—
—
—
—
—
17,529
—
—
—
—
—
—
—
—
—
(99,948)
$
—
—
(92,979) $
—
(62,565)
(30,901) $
—
—
—
(210,551)
—
(3,259)
—
(22,618) $ (757,416) $
—
—
—
—
1,486,451
282,807
(68,166)
(210,551)
17,529
(3,259)
(99,948)
680,525
—
—
$ 1,666,680
271,109
—
—
—
—
3,049
—
—
3,049
—
—
—
—
4,361
—
4,361
253
—
—
—
—
29,987
30,240
(54,950)
(54,950)
—
—
—
—
—
17,337
—
—
—
—
—
—
—
—
—
—
$
1,572,989
279,386
(77,024)
648,451
—
—
—
$
Net income
Cumulative translation adjustment
Net change in retirement obligations (net
of tax of $2,107)
Net change on derivatives designated as
cash flow hedges (net of tax of $2,490)
Issuance of 594,919 shares of common
stock from issuance of unvested shares,
performance share units and exercise of
stock options (net of tax of $5,305)
Repurchase of 738,593 shares of common
stock
Share-based compensation
Unvested shares surrendered for tax
withholding
Cash dividends declared — $1.36 per
common share outstanding
Balance, December 31, 2016
$ 1,293,740
279,386
—
—
Net income
Cumulative translation adjustment
Net change in retirement obligations (net
of tax of $3,842)
Share-based compensation
Unvested shares surrendered for tax
withholding
Cash dividends declared — $1.28 per
common share outstanding
Balance, December 31, 2015
608,658
—
—
698,115
(103,050)
$ 1,834,739
—
$
(155,544) $
—
(27,852) $
See Notes to Consolidated Financial Statements.
40
—
—
(4,928)
—
(18,257) $ (787,307) $
1,443,291
271,109
(62,565)
17,337
(4,928)
(103,050)
1,543,894
IDEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
2016
2015
2014
(In thousands)
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Loss (gain) on sale of fixed assets
Loss (gain) on sale of businesses - net
Asset impairments
Depreciation and amortization
Amortization of intangible assets
Amortization of debt issuance expenses
Share-based compensation expense
Deferred income taxes
Excess tax benefit from share-based compensation
Non-cash interest expense associated with forward starting swaps
Pension settlement
Changes in (net of the effect from acquisitions and divestitures):
Receivables
Inventories
Other current assets
Trade accounts payable
Accrued expenses
Other — net
Net cash flows provided by operating activities
Cash flows from investing activities
Purchases of property, plant and equipment
Acquisition of businesses, net of cash acquired
Proceeds from fixed asset disposals
Proceeds from sale of businesses, net of cash sold
Other — net
Net cash flows (used in) investing activities
Cash flows from financing activities
Borrowings under revolving credit facilities
Proceeds from issuance of 3.20% Senior Notes
Proceeds from issuance of 3.37% Senior Notes
Payment of 2.58% Senior Euro Notes
Payments under revolving credit facilities
Debt issuance costs
Dividends paid
Proceeds from stock option exercises
Excess tax benefit from share-based compensation
Purchases of common stock
Unvested shares surrendered for tax withholding
Net cash flows provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of period
Supplemental cash flow information
Cash paid for:
Interest
Income taxes
Significant non-cash activities:
Contingent consideration for acquisition
$
$
$
282,807
$
279,386
(28)
22,298
205
37,854
49,038
1,295
20,326
(17,308)
—
6,851
3,554
(114)
(18,070)
795
35,694
42,426
1,612
20,048
(339)
(5,265)
7,030
—
(351)
—
2,473
33,720
43,187
1,723
20,717
(8,593)
(6,275)
7,223
—
302
32,747
(22,006)
73
(5,470)
(923)
399,917
8,832
4,557
(2,728)
(2,828)
(16,672)
2,536
360,321
(11,110)
(7,821)
(5,201)
(2,466)
23,760
(2,411)
367,961
(38,242)
(510,001)
49
39,064
(69)
(509,199)
(43,776)
(195,013)
894
27,677
(273)
(210,491)
(47,997)
(25,443)
1,460
—
(280)
(72,260)
501,529
100,000
100,000
—
(520,125)
(246)
(102,650)
30,240
—
(57,272)
(4,928)
46,548
(29,320)
(92,054)
328,018
$ 235,964 $
See Notes to Consolidated Financial Statements.
41
271,109
37,067
109,399
—
$
414,032
165,014
—
—
—
—
(88,420)
—
(333,630)
(61,951)
(1,739)
—
(96,172)
(85,726)
19,217
17,161
5,265
6,275
(210,822)
(219,893)
(3,259)
(4,952)
(295,528)
(184,072)
(35,421)
(42,121)
(181,119)
69,508
509,137
439,629
328,018 $ 509,137
33,502
112,613
4,705
$
32,565
122,295
—
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
Significant Accounting Policies
Business
IDEX is an applied solutions company specializing in fluid and metering technologies, health and science technologies, and
fire, safety and other diversified products built to customers’ specifications. IDEX’s products are sold in niche markets to a wide
range of industries throughout the world. The Company’s products include industrial pumps, compressors, flow meters, injectors
and valves, and related controls for use in a wide variety of process applications; precision fluidics solutions, including pumps,
valves, degassing equipment, corrective tubing, fittings, and complex manifolds, optical filters and specialty medical equipment
and devices for use in life science applications; precision-engineered equipment for dispensing, metering and mixing paints; and
engineered products for industrial and commercial markets, including fire and rescue, transportation equipment, oil & gas,
electronics, and communications. These activities are grouped into three reportable segments: Fluid & Metering Technologies,
Health & Science Technologies and Fire & Safety/Diversified Products.
Principles of Consolidation
The consolidated financial statements include the Company and its subsidiaries. All intercompany transactions and accounts
have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosure
of contingent assets and liabilities, and reported amounts of revenue and expenses during the reporting period. Actual results could
differ from those estimates. The principal areas of estimation reflected in the financial statements are revenue recognition, sales
returns and allowances, allowance for doubtful accounts, inventory valuation, recoverability of long-lived assets, income taxes,
product warranties, contingencies and litigation, insurance-related items, defined benefit retirement plans and purchase accounting
related to acquisitions.
Revenue Recognition
The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price
is fixed or determinable, and collectability of the sales price is reasonably assured. For product sales, delivery does not occur until
the products have been shipped and risk of loss has been transferred to the customer. Revenue from services is recognized when
the services are provided or ratably over the contract term. Some arrangements with customers may include multiple deliverables,
including the combination of products and services. In such cases, the Company has identified these as separate elements in
accordance with Accounting Standards Codification (“ASC”) 605-25, Revenue Recognition-Multiple-Element Arrangements, and
recognizes revenue consistent with the policy for each separate element based on the relative selling price method. Revenues from
certain long-term contracts are recognized on the percentage-of-completion method. Percentage-of-completion is measured
principally by the percentage of costs incurred to date for each contract to the estimated total costs for such contract at completion.
Provisions for estimated losses on uncompleted long-term contracts are made in the period in which such losses are determined.
Due to uncertainties inherent in the estimation process, it is reasonably possible that completion costs, including those arising from
contract penalty provisions and final contract settlements, will be revised in the near-term. Such revisions to costs and income are
recognized in the period in which the revisions are determined.
The Company records allowances for discounts, product returns and customer incentives at the time of sale as a reduction
of revenue as such allowances can be reliably estimated based on historical experience and known trends. The Company also offers
product warranties and accrues its estimated exposure for warranty claims at the time of sale based upon the length of the warranty
period, warranty costs incurred and any other related information known to the Company.
Shipping and Handling Costs
Shipping and handling costs are included in Cost of sales and are recognized as a period expense during the period in which
they are incurred.
42
Advertising Costs
Advertising costs of $15.3 million, $16.1 million and $14.5 million for 2016, 2015 and 2014, respectively, are expensed as
incurred within Selling, general and administrative expenses.
Cash and Cash Equivalents
The Company considers all highly liquid instruments purchased with an original maturity of 90 days or less to be cash and
cash equivalents.
Allowance for Doubtful Accounts
The Company maintains allowances for doubtful accounts for estimated losses as a result of customers’ inability to make
required payments. Management evaluates the aging of the accounts receivable balances, the financial condition of its customers,
historical trends and the time outstanding of specific balances to estimate the amount of accounts receivable that may not be
collected in the future and records the appropriate provision.
Inventories
The Company states inventories at the lower of cost or market. Cost, which includes material, labor, and factory overhead,
is determined on a FIFO basis. We make adjustments to reduce the cost of inventory to its net realizable value, if required, for
estimated excess, obsolescence or impaired balances. Factors influencing these adjustments include changes in market demand,
product life cycle and engineering changes.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment if an event occurs or circumstances change that would more likely than not
reduce the fair value of a reporting unit below its carrying amount, as measured by comparing their net book value to the projected
undiscounted future cash flows generated by their use. A long-lived asset impairment exists when the carrying amount of the asset
exceeds its fair value. The amount and timing of impairment charges for these assets require the estimation of future cash flows
to determine the fair value of the related assets. Impaired assets are recorded at their estimated fair value based on a discounted
cash flow analysis. In 2016, 2015, and 2014, the Company concluded that certain long-lived assets had a fair value that was less
than the carrying value of the assets, resulting in $0.2 million, $0.8 million and $2.5 million, respectively, of long-lived asset
impairment charges.
Goodwill and Indefinite-Lived Intangible Assets
In accordance with ASC 350, Goodwill and Other Intangible Assets, the Company reviews the carrying value of goodwill
and indefinite-lived intangible assets annually on October 31, or if an event occurs or circumstances change that would more likely
than not reduce the fair value of a reporting unit below its carrying amount. The Company evaluates the recoverability of these
assets based on the estimated fair value of each of the thirteen reporting units and the indefinite-lived intangible assets. See Note 4
for a further discussion on goodwill and intangible assets.
Borrowing Expenses
Expenses incurred in securing and issuing debt are capitalized and included as a reduction of Long-term borrowings. These
amounts are amortized over the life of the related borrowing and the related amortization is included in Interest expense.
Earnings per Common Share
Earnings per common share (“EPS”) is computed by dividing net income by the weighted average number of shares of
common stock (basic) plus common stock equivalents (diluted) outstanding during the year. Common stock equivalents consist
of stock options, which have been included in the calculation of weighted average shares outstanding using the treasury stock
method, restricted stock, performance share units, and shares issuable in connection with certain deferred compensation agreements
(“DCUs”).
ASC 260, Earnings per Share, concludes that all outstanding unvested share-based payment awards that contain rights to
nonforfeitable dividends participate in undistributed earnings with common shareholders. If awards are considered participating
securities, the Company is required to apply the two-class method of computing basic and diluted earnings per share. The Company
has determined that its outstanding shares of restricted stock are participating securities. Accordingly, EPS was computed using
43
the two-class method prescribed by ASC 260. Net income attributable to common shareholders for the purpose of calculating EPS
was reduced by $0.5 million, $0.8 million and $1.3 million in 2016, 2015 and 2014, respectively.
Basic weighted average shares outstanding reconciles to diluted weighted average shares outstanding as follows:
2016
2015
2014
(In thousands)
Basic weighted average common shares outstanding
Dilutive effect of stock options, restricted stock, performance share units and DCUs
Diluted weighted average common shares outstanding
75,803
955
76,758
77,126
846
77,972
79,715
1,013
80,728
Options to purchase approximately 0.9 million, 0.9 million and 0.5 million shares of common stock in 2016, 2015 and 2014,
respectively, were not included in the computation of diluted EPS because the effect of their inclusion would have been antidilutive.
Share-Based Compensation
The Company accounts for share-based payments in accordance with ASC 718, Compensation-Stock Compensation.
Accordingly, the Company expenses the fair value of awards made under its share-based compensation plans. That cost is recognized
in the consolidated financial statements over the requisite service period of the grants. See Note 13 for further discussion on sharebased compensation.
Depreciation and Amortization
Property and equipment are stated at cost, with depreciation and amortization provided using the straight-line method over
the following estimated useful lives:
Land improvements
Buildings and improvements
Machinery, equipment and other
Office and transportation equipment
8 to 12 years
8 to 30 years
3 to 12 years
3 to 10 years
Certain identifiable intangible assets are amortized over their estimated useful lives using the straight-line method. The
estimated useful lives used in the computation of amortization of identifiable intangible assets are as follows:
Patents
Trade names
Customer relationships
Unpatented technology and other
5 to 17 years
10 to 20 years
6 to 20 years
6 to 20 years
Research and Development Expenditures
Costs associated with research and development are expensed in the period incurred and are included in Cost of sales.
Research and development expenses, which include costs associated with developing new products and major improvements to
existing products, were $39.4 million, $33.6 million and $36.8 million in 2016, 2015 and 2014, respectively.
44
Foreign Currency
The functional currency of substantially all operations outside the United States is the respective local currency. Accordingly,
those foreign currency balance sheet accounts have been translated using the exchange rates in effect as of the balance sheet date.
Income statement amounts have been translated using the average exchange rate for the year. The gains and losses resulting from
changes in exchange rates from year to year have been reported in Accumulated other comprehensive income (loss) in the
Consolidated Balance Sheets. The foreign currency transaction losses (gains) for the periods ending December 31, 2016, 2015
and 2014 were $(6.2) million, $(0.1) million, and $0.9 million, respectively, and are reported within Other (income) expense-net
on the Consolidated Statements of Operations. Of the $6.2 million reported as foreign currency transaction gains for the period
ending December 31, 2016, $4.7 million was due to intercompany loans established in conjunction with the SFC Koenig acquisition.
Income Taxes
Income tax expense includes United States, state, local and international income taxes. Deferred tax assets and liabilities are
recognized for the tax consequences of temporary differences between the financial reporting and the tax basis of existing assets
and liabilities and for loss carryforwards. The tax rate used to determine the deferred tax assets and liabilities is the enacted tax
rate for the year and manner in which the differences are expected to reverse. Valuation allowances are recorded to reduce deferred
tax assets to the amount that will more likely than not be realized.
Concentration of Credit Risk
The Company is not dependent on a single customer as its largest customer accounted for less than 2% of net sales for all
years presented.
Recently Adopted Accounting Standards
In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09,
Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of the accounting for employee
share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding
requirements, as well as classification in the statement of cash flows. The Company elected to early adopt this standard in the
quarter ended March 31, 2016. The Company applied this standard prospectively and thus, prior periods have not been adjusted.
The impact of the adoption resulted in the following:
•
The Company recorded a tax benefit of $6.8 million within Provision for income taxes for the year ended December 31,
2016, related to the excess tax benefit on stock options, restricted stock and performance share units. Prior to adoption
this amount would have been recorded as a reduction of additional paid-in capital. The adoption of this standard could
create volatility in the Company’s effective tax rate going forward.
•
The Company elected not to change our policy on accounting for forfeitures and continued to estimate the total number
of awards for which the requisite service period will not be rendered.
•
The Company no longer reclassifies the excess tax benefit from operating activities to financing activities in the statement
of cash flows.
•
The Company excluded the excess tax benefits from the assumed proceeds available to repurchase shares in the
computation of our diluted earnings per share for the year ended December 31, 2016. This increased our diluted weighted
average common shares outstanding by 127 thousand shares for the year ended December 31, 2016.
In April 2015, the FASB issued ASU 2015-03, Interest-Imputation of Interest: Simplifying the Presentation of Debt
Issuance Costs, which simplifies the presentation of debt issuance costs. Under ASU 2015-03, an entity presents such costs in
the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs is
reported as interest expense. This standard is effective for fiscal years beginning after December 15, 2015. The Company
elected to early adopt this guidance effective in the fourth quarter of fiscal year 2015.
In April 2014, the FASB issued ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of
Components of an Entity, which includes amendments that change the requirements for reporting discontinued operations. Under
the new guidance, only disposals representing a strategic shift in operations with a major effect on the organization’s operations
and financial results should be presented as discontinued operations. Additionally, the ASU requires expanded disclosures about
disposal transactions that do not meet the discontinued operations criteria. The Company adopted the standard effective January
1, 2015 and the adoption did not impact the consolidated financial position, results of operations or cash flows of the Company.
45
The Company concluded that none of the divestitures that took place during the years ended December 31, 2016 and 2015 met
the new criteria for reporting discontinued operations. The Company did include required disclosures of disposals of components
of an entity in Note 2.
New Accounting Pronouncements
In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, which eliminates Step 2
from the goodwill impairment test. Under this ASU, if the carrying amount of a reporting unit exceeds its fair value, an impairment
loss will be recognized in an amount equal to the excess, limited to the total amount of goodwill allocated to the reporting unit.
This ASU also eliminated the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative
assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. In addition, companies will be
required to disclose the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets.
The update is effective for annual and any interim impairment tests for periods beginning after December 15, 2019, and early
adoption is permitted. The Company does not believe the guidance will have a material impact on our consolidated financial
statements.
In October 2016, the FASB issued ASU 2016-16, Intra-Entity Transfers of Assets Other Than Inventory, which amends
ASC 740, Income Taxes. This ASU requires that the income tax consequences of an intra-entity asset transfer other than inventory
are recognized at the time of the transfer. An entity will continue to recognize the income tax consequences of an intercompany
transfer of inventory when the inventory is sold to a third party. The update is effective for financial statements issued for fiscal
years beginning after December 15, 2017, and early adoption is permitted. The ASU requires adoption on a modified-retrospective
basis through a cumulative adjustment to retained earnings at the beginning of the period of adoption. The Company is currently
assessing the impact that adopting this new accounting standard will have on its consolidated financial statements and footnote
disclosures.
In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments (a consensus
of the FASB Emerging Issues Task Force). This ASU addresses the following eight specific cash flow issues: Debt prepayment or
debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that
are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business
combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance
policies (including bank-owned life insurance policies); distributions received from equity method investees; beneficial interests
in securitization transactions; and separately identifiable cash flows and application of the predominance principle. This standard
is effective for fiscal years beginning after December 15, 2017. The Company does not believe the guidance will have a material
impact on our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases, which sets out the principles for the recognition, measurement,
presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The standard introduces a new lessee
model that will require most leases to be recorded on the balance sheet and eliminates the required use of bright line tests in current
U.S. GAAP for determining lease classification. The new standard requires lessors to account for leases using an approach that
is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. This standard
is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Companies are
permitted to adopt the standard early and a modified retrospective application is required. The Company is currently evaluating
the impact of adopting the new guidance on our consolidated financial statements.
46
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which will replace numerous
requirements in U.S. GAAP, including industry-specific requirements, and provide companies with a new five-step model for
recognizing revenue from contracts with customers. Under ASU 2014-09, an entity should recognize revenue to depict the transfer
of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled
in exchange for those goods or services. This ASU also requires disclosures sufficient to enable users to understand the nature,
amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, including qualitative and
quantitative disclosures about contracts with customers, significant judgments and changes in judgments, and assets recognized
from the costs to obtain or fulfill a contract. This standard is effective for fiscal years beginning after December 15, 2017, using
either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior
reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of
initially adopting ASU 2014-09 recognized at the date of adoption. The FASB has also issued the following standards which clarify
ASU 2014-09 and have the same effective date as the original standard: ASU 2016-08, Revenue from Contracts with Customers:
Principal versus Agent Considerations (Reporting Revenue Gross versus Net); ASU 2016-10, Revenue from Contracts with
Customers: Identifying Performance Obligations and Licensing; ASU 2016-12, Revenue from Contracts with Customers: NarrowScope Improvements and Practical Expedients; and ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue
from Contracts with Customers.
In 2016, we established an implementation team and analyzed the impact of the standard by surveying business units and
reviewing contracts to identify potential differences that may result from applying the requirements of the new standard. We have
made significant progress on our contract reviews during 2016 and the first quarter of 2017. While we are continuing to assess
all potential impacts of the new standard, we currently believe that the most significant potential change relates to contracts for
the development, manufacture and sale of customized products in our Health & Science Technologies segment. Due to the
complexity of certain contracts in our Health & Science Technologies segment, the actual revenue recognition treatment required
under the standard will be dependent on contract-specific terms. However, under the new standard we expect revenue recognition
to remain substantially unchanged as the contract reviews support the recognition of revenue at a point in time, which is consistent
with our current revenue recognition model. We also expect revenue related to the Fluid & Metering Technologies segment and
the Fire & Safety/Diversified Products segment to remain substantially unchanged. The implementation team has reported these
initial findings and progress of the project to the Audit Committee. The Company is still evaluating the impact of the new guidance
on our consolidated financial statements and has not yet determined the method by which we will adopt the standard in 2018.
2.
Acquisitions and Divestitures
All of the Company’s acquisitions have been accounted for under ASC 805, Business Combinations. Accordingly, the
accounts of the acquired companies, after adjustments to reflect fair values assigned to assets and liabilities, have been included
in the Company’s consolidated financial statements from their respective dates of acquisition. The results of operations of the
acquired companies have been included in the Company’s consolidated results since the date of each acquisition. Supplemental
pro forma information has not been provided as the acquisitions did not have a material impact on the Company’s consolidated
results of operations individually or in the aggregate.
2016 Acquisitions
On March 16, 2016, the Company acquired the stock of Akron Brass Holding Corporation (“Akron Brass”), a producer of
a large array of engineered life–safety products for the safety and emergency response markets, which includes apparatus valves,
monitors, nozzles, specialty lighting, electronic vehicle–control systems and firefighting hand tools. The business was acquired
to complement and create synergies with our existing Hale, Class 1, and Godiva businesses. Headquartered in Wooster, Ohio,
Akron Brass had annual revenues in its most recent fiscal year of approximately $120 million and operates in our Fire & Safety/
Diversified Products segment. Akron Brass was acquired for cash consideration of $221.4 million. The purchase price was funded
with borrowings under the Company’s revolving facilities. Goodwill and intangible assets recognized as part of the transaction
were $124.6 million and $90.4 million, respectively. The goodwill is not deductible for tax purposes.
On July 1, 2016, the Company acquired the stock of AWG Fittings GmbH (“AWG Fittings”), a producer of engineered
products for the safety and emergency response markets, including valves, monitors and nozzles. The business was acquired to
complement and create synergies with our existing Hale, Class 1, Godiva and Akron Brass businesses. Headquartered in Ballendorf,
Germany, AWG Fittings had annual revenues in its most recent fiscal year of approximately $40 million and operates in our Fire
& Safety/Diversified Products segment. AWG Fittings was acquired for cash consideration of $47.5 million (€42.8 million). The
purchase price was funded with cash on hand. Goodwill and intangible assets recognized as part of the transaction were $22.0
million and $10.3 million, respectively. The goodwill is not deductible for tax purposes.
47
On August 31, 2016, the Company acquired the stock of SFC Koenig AG (“SFC Koenig”), a producer of highly engineered
expanders and check valves for critical applications across the transportation, hydraulic, aviation and medical markets.
Headquartered in Dietikon, Switzerland, SFC Koenig had annual revenues in its most recent fiscal year of approximately $63
million and operates in our Health & Science Technologies segment. SFC Koenig was acquired for cash consideration of $241.1
million (€215.9 million). The purchase price was funded with cash on hand and borrowings under the Company’s revolving
facilities. Goodwill and intangible assets recognized as part of the transaction were $143.7 million and $117.0 million, respectively.
The goodwill is not deductible for tax purposes.
The Company made initial allocations of the purchase price for the Akron Brass, AWG Fittings and SFC Koenig acquisitions
as of the acquisition date based on its understanding of the fair value of the acquired assets and assumed liabilities. These nonrecurring
fair value measurements are classified as Level 3 in the fair value hierarchy. As the Company obtains additional information about
these assets and liabilities and learns more about the newly acquired businesses, we will refine the estimates of fair value and more
accurately allocate the purchase price. Only items identified as of the acquisition date are considered for subsequent adjustment.
The Company is in the process of finalizing purchase price allocations for the Akron Brass, AWG Fittings and SFC Koenig
acquisitions and will make appropriate adjustments to the purchase price allocations prior to the completion of the measurement
period, as required.
The preliminary allocation of the acquisition costs to the assets acquired and liabilities assumed, based on their estimated
fair values at their respective acquisition dates, are as follows:
Akron Brass
AWG Fittings
SFC Koenig
Total
(In thousands)
Accounts receivable
Inventory
Other assets, net of cash acquired
Property, plant and equipment
Goodwill
Intangible assets
Deferred income taxes
Total assets acquired
Current liabilities
Deferred income taxes
Other noncurrent liabilities
Net assets acquired
$
$
14,523 $
29,157
446
12,195
124,643
90,400
—
271,364
(7,081)
(36,439)
(6,445)
5,952 $
11,766
565
6,847
22,031
10,279
3,515
60,955
(5,017)
221,399
47,494
—
(8,444)
$
$
9,425 $
21,247
4,501
5,125
143,719
116,998
—
301,015
(10,088)
(41,370)
(8,449)
29,900
62,170
5,512
24,167
290,393
217,677
3,515
633,334
(22,186)
(77,809)
(23,338)
241,108
510,001
$
Acquired intangible assets consist of trade names, customer relationships and unpatented technology. The goodwill recorded
for the acquisitions reflects the strategic fit, revenue and earnings growth potential of these businesses.
Of the $217.7 million of acquired intangible assets, $28.8 million was assigned to the Akron Brass trade name and is not
subject to amortization. The acquired intangible assets and weighted average amortization periods are as follows:
(In thousands, except weighted average life)
Total
Trade names
Customer relationships
Unpatented technology
Amortized intangible assets
Indefinite lived - Akron Brass trade name
Total acquired intangible assets
$
$
14,078
134,519
40,280
188,877
28,800
217,677
Weighted Average Life
15
13
13
The Company incurred $4.7 million of acquisition-related transaction costs in 2016. These costs were recorded in Selling,
general and administrative expenses and were related to completed transactions, pending transactions and potential transactions,
including transactions that ultimately were not completed. The Company also incurred $14.7 million of non-cash acquisition fair
value inventory step-up charges associated with the completed 2016 acquisitions. These charges were recorded in Cost of sales.
48
2015 Acquisitions
On May 29, 2015, the Company acquired the stock of Novotema, SpA (“Novotema”), a leader in the design, manufacture
and sale of specialty sealing solutions for use in the building products, gas control, transportation, industrial and water markets.
The business was acquired to complement and create synergies with our existing Sealing Solutions platform. Located in Villongo,
Italy, Novotema operates in our Health & Science Technologies segment. Novotema was acquired for cash consideration of $61.1
million (€56 million). The entire purchase price was funded with cash on hand. Goodwill and intangible assets recognized as part
of this transaction were $34.3 million and $20.0 million, respectively. The $34.3 million of goodwill is not deductible for tax
purposes.
On June 10, 2015, the Company acquired the stock of Alfa Valvole, S.r.l (“Alfa Valvole”), a leader in the design, manufacture
and sale of specialty valve products for use in the chemical, petro-chemical, energy and sanitary markets. The business was acquired
to expand our valve capabilities. Located in Casorezzo, Italy, Alfa Valvole operates in our Fluid & Metering Technologies segment.
Alfa Valvole was acquired for cash consideration of $112.6 million (€99.8 million). The entire purchase price was funded with
cash on hand. Goodwill and intangible assets recognized as part of this transaction were $69.6 million and $32.1 million, respectively.
The $69.6 million of goodwill is not deductible for tax purposes.
On July 1, 2015, the Company acquired the membership interests of CiDRA Precision Services, LLC (“CPS” or “CiDRA
Precision Services”), a leader in the design, manufacture and sale of microfluidic components serving the life science, health and
industrial markets. The business was acquired to provide a critical building block to our emerging microfluidic and nanofludics
capabilities. Located in Wallingford, Connecticut, CPS operates in our Health & Science Technologies segment. CPS was acquired
for an aggregate purchase price of $24.2 million, consisting of $19.5 million in cash and contingent consideration valued at $4.7
million as of the opening balance sheet date. The contingent consideration was based on the achievement of financial objectives
during the 12-month period following the close. Based on potential outcomes, the undiscounted amount of all the future payments
that the Company could have been required to make under the contingent consideration arrangement was between $0 and $5.5
million. During the six months ended June 30, 2016, the Company re-evaluated the contingent consideration arrangement and
fully reversed the $4.7 million liability based on CPS’s actual operating results from July 1, 2015 to June 30, 2016. The $4.7 million
reversal was recognized as a benefit within Selling, general and administrative expenses, of which $3.7 million was recognized
in March 2016 and the remaining $1.0 million was recognized in June 2016. The entire purchase price was funded with cash on
hand. Goodwill and intangible assets recognized as part of this transaction were $9.7 million and $12.3 million, respectively. The
$9.7 million of goodwill is deductible for tax purposes.
On December 1, 2015, the Company acquired the assets of a complementary product line within our Fluid & Metering
Technologies segment. The purchase price and goodwill associated with this transaction were $1.9 million and $0.7 million,
respectively.
The purchase prices for Novotema, Alfa Valvole and CPS have been allocated to the assets acquired and liabilities assumed
based on the estimated fair values at the date of the acquisitions.
The allocation of the acquisition costs to the assets acquired and liabilities assumed, based on their estimated fair values at
their respective acquisition dates, is as follows:
Novotema
Alfa Valvole
CPS
Other
Total
(In thousands)
Accounts receivable
Inventory
Other assets, net of cash acquired
Property, plant and equipment
Goodwill
Intangible assets
Total assets acquired
Current liabilities
Deferred income taxes
Other noncurrent liabilities
Net assets acquired
$
8,029
2,886
1,866
11,844
34,316
$
20,011
78,952
(7,760)
(7,803)
(2,291)
$
61,098
49
13,487
11,036
3,367
8,395
69,568
$
32,058
137,911
(11,279)
(12,622)
(1,420)
$
112,590
945
442
79
1,105
9,739
$
12,290
24,600
(420)
$
—
—
24,180
$
—
1,102
—
—
748
—
1,850
—
—
—
1,850
$
22,461
15,466
5,312
21,344
114,371
64,359
243,313
(19,459)
(20,425)
(3,711)
$
199,718
Acquired intangible assets consist of trade names, customer relationships and unpatented technology. The goodwill recorded
for the acquisitions reflects the strategic fit, revenue and earnings growth potential of these businesses.
The acquired intangible assets and weighted average amortization periods are as follows:
(In thousands, except weighted average life)
Weighted
Average
Life
Total
Trade names
Customer relationships
Unpatented technology
Total acquired intangible assets
$
$
9,247
44,401
10,711
64,359
15
12
8
The Company incurred $2.6 million of acquisition-related transaction costs in 2015. These costs were recorded in Selling,
general and administrative expense and were related to completed transactions, pending transactions and potential transactions,
including transactions that ultimately were not completed. The Company also incurred $3.4 million of non-cash acquisition fair
value inventory charges in 2015. These charges were recorded in Cost of sales.
2014 Acquisitions
On April 28, 2014, the Company acquired the stock of Aegis Flow Technologies (“Aegis”), a producer of specialty chemical
processing valves for use in the chemical, petro-chemical, chlor-alkali, and pulp/paper industries. Located in Geismar, Louisiana,
Aegis operates in our Fluid & Metering Technologies segment. Aegis was acquired for cash consideration of approximately $25
million. The entire purchase price was funded with borrowings under the Company’s revolving facilities. Goodwill and intangible
assets recognized as part of this transaction were $7.7 million and $8.8 million, respectively. The $7.7 million of goodwill is
deductible for tax purposes.
The purchase price for Aegis has been allocated to the assets acquired and liabilities assumed based on the estimated fair
values at the date of the acquisition.
The allocation of the acquisition costs to the assets acquired and liabilities assumed, based on their estimated fair values at
the acquisition date, is as follows:
(In thousands)
Accounts receivable
Inventory
Other current assets, net of cash acquired
Property, plant and equipment
Goodwill
Intangible assets
Total assets acquired
Total liabilities assumed
Net assets acquired
$
1,147
6,230
232
2,988
7,711
8,770
27,078
(1,633)
$
25,445
Acquired intangible assets consist of trade names, customer relationships and unpatented technology. The goodwill recorded
for the acquisition reflects the strategic fit, revenue and earnings growth potential of this business.
The acquired intangible assets and weighted average amortization periods are as follows:
50
(In thousands, except weighted average life)
Total
Trade names
Customer relationships
Unpatented technology
Total acquired intangible assets
$
$
3,304
4,393
1,073
8,770
Weighted
Average
Life
15
14
8
The Company incurred $1.7 million of acquisition-related transaction costs in 2014. These costs were recorded in Selling,
general and administrative expense and were related to completed transactions, pending transactions and potential transactions,
including transactions that ultimately were not completed. The Company incurred $1.3 million of non-cash acquisition fair value
inventory charges in 2014. These charges were recorded in Cost of sales.
2016 Divestitures
The Company periodically reviews its operations for businesses which may no longer be aligned with its strategic objectives
and focus on core business and customers. Any resulting gain or loss recognized due to divestitures is recorded within Loss (gain)
on sale of businesses - net.
On July 29, 2016, the Company completed the sale of its Hydra-Stop product line for $15.0 million in cash, resulting in a
pre-tax gain on the sale of $5.8 million. In addition, the Company can earn up to $2 million based on the achievement of financial
objectives for net sales in 2016 and 2017. The Company recorded $2.8 million of income tax expense associated with this transaction
during the year ended December 31, 2016. The results of Hydra-Stop were reported within the Fluid & Metering Technologies
segment and generated $7.5 million of revenues in 2016 through the date of sale.
On September 9, 2016, the Company completed the sale of its Melles Griot KK (“CVI Japan”) subsidiary for $17.5 million
in cash, resulting in a pre-tax loss on the sale of $7.9 million. The Company recorded $3.4 million of income tax benefit associated
with this transaction during the year ended December 31, 2016. The results of CVI Japan were reported within the Health & Science
Technologies segment and generated $13.1 million of revenues in 2016 through the date of sale.
On October 10, 2016, the Company completed the sale of its IETG and 40Seven subsidiaries for $2.7 million in cash, resulting
in a pre-tax loss on the sale of $4.2 million. There was no income tax impact associated with this transaction. The results of IETG
and 40Seven were reported within the Fluid & Metering Technologies segment and generated $8.3 million of revenues in 2016
through the date of sale.
On December 30, 2016, the Company completed the sale of its Korea Electro-Optics Co., Ltd. (“CVI Korea”) subsidiary
for $3.8 million in cash, resulting in a pre-tax loss on the sale of $16.0 million. The Company recorded $9.1 million of income
tax benefit associated with this transaction during the year ended December 31, 2016. The results of CVI Korea were reported
within the Health & Science Technologies segment and generated $11.7 million of revenues in 2016 through the date of sale.
2015 Divestiture
On July 31, 2015, the Company completed the sale of its Ismatec product line for $27.7 million in cash, resulting in a pretax gain on the sale of $18.1 million. The Company recorded $4.8 million of income tax expense associated with this transaction
during the year ended December 31, 2015. The results of Ismatec were reported in the Health & Science Technologies segment
and generated $5.3 million of revenues in 2015 through the date of sale.
51
3.
Balance Sheet Components
December 31,
2016
2015
(In thousands)
RECEIVABLES
Customers
Other
Total
Less allowance for doubtful accounts
Total receivables — net
INVENTORIES
Raw materials and components parts
Work in process
Finished goods
Total
PROPERTY, PLANT AND EQUIPMENT
Land and improvements
Buildings and improvements
Machinery, equipment and other
Office and transportation equipment
Construction in progress
Total
Less accumulated depreciation and amortization
Total property, plant and equipment — net
ACCRUED EXPENSES
Payroll and related items
Management incentive compensation
Income taxes payable
Insurance
Warranty
Deferred revenue
Restructuring
Liability for uncertain tax positions
Accrued interest
Contingent consideration for acquisition
Other
Total accrued expenses
OTHER NONCURRENT LIABILITIES
Pension and retiree medical obligations
Liability for uncertain tax positions
Deferred revenue
Other
Total other noncurrent liabilities
$
$
$
$
$
$
$
$
$
$
52
275,250
5,641
280,891
8,078
272,813
$
154,278
34,832
63,749
252,859
$
33,883
169,261
328,779
98,355
10,373
640,651
392,835
247,816
$
67,600
16,339
8,808
9,416
5,628
12,607
3,893
1,366
1,663
—
25,532
152,852
$
93,604
2,623
2,442
22,561
121,230
$
$
$
$
$
$
262,304
5,508
267,812
7,812
260,000
141,671
32,387
65,066
239,124
34,343
157,946
331,146
97,250
13,377
634,062
393,117
240,945
67,209
12,599
3,836
9,505
7,936
9,885
6,636
3,498
1,230
4,705
26,633
153,672
76,190
4,252
3,763
18,160
102,365
The valuation and qualifying account activity for the years ended December 31, 2016, 2015 and 2014 is as follows:
2016
2015
2014
(In thousands)
ALLOWANCE FOR DOUBTFUL ACCOUNTS (1)
Beginning balance January 1
Charged to costs and expenses, net of recoveries
Utilization
Currency translation and other
Ending balance December 31
$
$
7,812 $
1,425
(1,585)
426
8,078
6,961 $
1,556
(1,009)
304
7,812
$
$
5,841
2,643
(1,195)
(328)
6,961
(1) Includes provision for doubtful accounts, sales returns and sales discounts granted to customers.
4.
Goodwill and Intangible Assets
The changes in the carrying amount of goodwill for 2016 and 2015, by reportable business segment, were as follows:
Fluid &
Metering
Technologies
Health &
Science
Technologies
Fire & Safety/
Diversified
Products
Total
(In thousands)
Goodwill
Accumulated goodwill impairment losses
$
544,870 $
(20,721)
Balance at January 1, 2015
Foreign currency translation
Acquisitions
Disposition of businesses
Balance at December 31, 2015
Foreign currency translation
Acquisitions
Disposition of businesses
Acquisition adjustments
Balance at December 31, 2016
263,753 $
(30,090)
1,521,908
(200,631)
524,149
(11,318)
563,465
(6,155)
233,663
(12,509)
1,321,277
(29,982)
71,939
—
584,770
(5,951)
43,508
(10,213)
—
—
221,154
(7,972)
115,447
(10,213)
590,605
(23,559)
—
(3,759)
(1,623)
$
713,285 $
(149,820)
573,437
143,719
(12,013)
$
547
699,299
$
146,674
—
—
359,856
1,396,529
(37,482)
290,393
(15,772)
(1,076)
$
1,632,592
ASC 350 requires that goodwill be tested for impairment at the reporting unit level on an annual basis and between annual
tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below
its carrying value. Goodwill represents the purchase price in excess of the net amount assigned to assets acquired and liabilities
assumed.
Goodwill and other acquired intangible assets with indefinite lives were tested for impairment as of October 31, 2016, the
Company’s annual impairment date. In assessing the fair value of the reporting units, the Company considers both the market
approach and the income approach. Under the market approach, the fair value of the reporting unit is determined by the respective
trailing twelve month EBITDA and the forward looking 2017 EBITDA (generally 50% each), based on multiples of comparable
public companies. The market approach is dependent on a number of significant management assumptions including forecasted
EBITDA and selected market multiples. Under the income approach, the fair value of the reporting unit is determined based on
the present value of estimated future cash flows. The income approach is dependent on a number of significant management
assumptions including estimates of operating results, capital expenditures, net working capital requirements, long-term growth
rates and discount rates. Weighting was equally attributed to both the market and the income approaches (50% each) in arriving
at the fair value of the reporting units.
53
In addition to performing our annual impairment test, we also performed interim impairment tests due to the divestitures in
the third and fourth quarters of 2016 as well as the reorganization of certain reporting units. As a result of these impairment tests,
the Company concluded that the reporting units had fair values in excess of their carrying values.
The following table provides the gross carrying value and accumulated amortization for each major class of intangible asset
at December 31, 2016 and 2015:
At December 31, 2016
Gross
Carrying
Amount
Accumulated
Amortization
At December 31, 2015
Net
Weighted
Average
Life
Gross
Carrying
Amount
(In thousands)
Amortized intangible assets:
Patents
$
9,856
Trade names
113,428
Customer relationships
369,087
Non-compete agreements
—
Unpatented technology
106,747
Other
6,527
Total amortized intangible
assets
605,645
Indefinite-lived intangible assets:
Banjo trade name
62,100
Akron Brass trade name
28,800
Total intangible assets
$ 696,545
$
Accumulated
Amortization
Net
(In thousands)
(6,635) $ 3,221
(42,653)
70,775
(161,065) 208,022
—
—
11
16
12
3
12
10
$
10,202
110,658
257,071
794
(44,516)
(6,172)
62,231
355
78,562
6,554
(261,041)
344,604
463,841
—
62,100
—
28,800
$ (261,041) $ 435,504
62,100
—
$ 525,941
$
(6,175) $ 4,027
(38,696)
71,962
(144,134) 112,937
(775)
19
(42,745)
35,817
(5,579)
975
(238,104)
225,737
—
62,100
—
—
$ (238,104) $ 287,837
The Banjo trade name is an indefinite-lived intangible asset which is tested for impairment on an annual basis in accordance
with ASC 350 or more frequently if events or changes in circumstances indicate that the asset might be impaired. The Company
uses the relief-from-royalty method, a form of the income approach, to determine the fair value of the Banjo trade name. The
relief-from-royalty method is dependent on a number of significant management assumptions, including estimates of revenues,
royalty rates and discount rates.
The Akron Brass trade name is an indefinite-lived intangible asset that was acquired as a result of the Akron Brass acquisition
in March 2016 and is tested for impairment on an annual basis in accordance with ASC 350 or more frequently if events or changes
in circumstances indicate that the asset might be impaired. The Company uses the relief-from-royalty method, a form of the income
approach, to determine the fair value of the Akron Brass trade name. The relief-from-royalty method is dependent on a number of
significant management assumptions, including estimates of revenues, royalty rates and discount rates.
In 2016 and 2015, there were no events that occurred or circumstances that changed that would have required a review other
than as of our annual test date. Based on the results of our measurement as of October 31, 2016, the fair value of the Banjo trade
name was more than 25% in excess of the carrying value and the fair value of the Akron Brass trade name was near its carrying
value as a result of the acquisition of this business in March 2016.
Amortization of intangible assets was $49.0 million, $42.4 million and $43.2 million in 2016, 2015 and 2014, respectively.
Based on the intangible asset balances as of December 31, 2016, amortization expense is expected to approximate $44.8 million
in 2017, $36.5 million in 2018, $33.1 million in 2019, $31.7 million in 2020 and $30.8 million in 2021.
54
5.
Borrowings
Borrowings at December 31, 2016 and 2015 consisted of the following:
2016
2015
(In thousands)
Revolving Facility
4.5% Senior Notes, due December 2020
4.2% Senior Notes, due December 2021
3.2% Senior Notes, due June 2023
3.37% Senior Notes, due June 2025
Other borrowings
Total borrowings
Less current portion
Less deferred debt issuance costs
Less unaccreted debt discount
Total long-term borrowings
$
$
169,579
300,000
350,000
100,000
100,000
1,294
1,020,873
1,046
4,399
1,193
1,014,235
$
$
195,000
300,000
350,000
—
—
2,436
847,436
1,087
5,203
1,439
839,707
On June 13, 2016, the Company completed a private placement of $100 million aggregate principal amount of 3.20% Senior
Notes due June 13, 2023 and $100 million aggregate principal amount of 3.37% Senior Notes due June 13, 2025 (collectively, the
“Notes”) pursuant to a Note Purchase Agreement, dated June 13, 2016 (the “Purchase Agreement”). Each series of Notes bears
interest at the stated amount per annum, which is payable semi-annually in arrears on each June 13th and December 13th. The Notes
are unsecured obligations of the Company and rank pari passu in right of payment with all of the Company’s other unsecured,
unsubordinated debt. The Company may at any time prepay all, or any portion of the Notes; provided that such portion is greater
than 5% of the aggregate principal amount of Notes then outstanding. In the event of a prepayment, the Company will pay an
amount equal to par plus accrued interest plus a make-whole amount. In addition, the Company may repurchase the Notes by
making an offer to all holders of the Notes, subject to certain conditions.
The Purchase Agreement contains certain covenants that restrict the Company’s ability to, among other things, transfer or
sell assets, incur indebtedness, create liens, transact with affiliates and engage in certain mergers or consolidations or other change
of control transactions. In addition, the Company must comply with a leverage ratio and interest coverage ratio, as further described
below, and the Purchase Agreement also limits the outstanding principal amount of priority debt that may be incurred by the
Company to 15% of consolidated assets. The Purchase Agreement provides for customary events of default. In the case of an event
of default arising from specified events of bankruptcy or insolvency, all of the outstanding Notes will become due and payable
immediately without further action or notice. In the case of payment event of default, any holder of the Notes affected thereby
may declare all the Notes held by it due and payable immediately. In the case of any other event of default, a majority of the holders
of Notes may declare all of the Notes to be due and payable immediately.
On June 23, 2015, the Company entered into a credit agreement (the “Credit Agreement”) along with certain of its subsidiaries,
as borrowers (the “Borrowers”), Bank of America, N.A., as administrative agent, swing line lender and an issuer of letters of credit,
with other agents party thereto. The Credit Agreement replaces the Company’s existing five-year $700 million credit agreement,
dated as of June 27, 2011, which was due to expire on June 27, 2016.
The Credit Agreement consists of a revolving credit facility (the “Revolving Facility”) in an aggregate principal amount of
$700 million, with a final maturity date of June 23, 2020. The maturity date may be extended under certain conditions for an
additional one-year term. Up to $75 million of the Revolving Facility is available for the issuance of letters of credit. Additionally,
up to $50 million of the Revolving Facility is available to the Company for swing line loans, available on a same-day basis.
Proceeds of the Revolving Facility are available for use by the Borrowers for acquisitions, working capital and other general
corporate purposes, including refinancing existing debt of the Company and its subsidiaries. The Company may request increases
in the lending commitments under the Credit Agreement, but the aggregate lending commitments pursuant to such increases may
not exceed $350 million. The Company has the right, subject to certain conditions set forth in the Credit Agreement, to designate
certain foreign subsidiaries of the Company as borrowers under the Credit Agreement. In connection with any such designation,
the Company is required to guarantee the obligations of any such subsidiaries.
55
Borrowings under the Credit Agreement bear interest at either an alternate base rate or an adjusted LIBOR rate plus, in each
case, an applicable margin. Such applicable margin is based on the Company’s senior, unsecured, long-term debt rating and can
range from .005% to 1.50%. Based on the Company’s credit rating at December 31, 2016, the applicable margin was 1.10%
resulting in a weighted average interest rate of 1.50% at December 31, 2016. Interest is payable (a) in the case of base rate loans,
quarterly, and (b) in the case of LIBOR rate loans, on the maturity date of the borrowing, or quarterly from the effective date for
borrowings exceeding three months.
The Credit Agreement requires payment to the lenders of a facility fee based upon (a) the amount of the lenders’ commitments
under the credit facility from time to time and (b) the applicable corporate credit ratings of the Company. Voluntary prepayments
of any loans and voluntary reductions of the unutilized portion of the commitments under the credit facility are permissible without
penalty, subject to break funding payments and minimum notice and minimum reduction amount requirements.
The negative covenants include, among other things, limitations (each of which is subject to customary exceptions for
financings of this type) on our ability to grant liens; enter into transactions resulting in fundamental changes (such as mergers or
sales of all or substantially all of the assets of the Company); restrict subsidiary dividends or other subsidiary distributions; enter
into transactions with the Company’s affiliates; and incur certain additional subsidiary debt.
The Credit Agreement also contains customary events of default (subject to grace periods, as appropriate) including among
others: nonpayment of principal, interest or fees; breach of the representations or warranties in any material respect; breach of the
financial, affirmative or negative covenants; payment default on, or acceleration of, other material indebtedness; bankruptcy or
insolvency; material judgments entered against the Company or any of its subsidiaries; certain specified events under the Employee
Retirement Income Security Act of 1974, as amended; certain changes in control of the Company; and the invalidity or
unenforceability of the Credit Agreement or other documents associated with the Credit Agreement.
At December 31, 2016, $169.6 million was outstanding under the Revolving Facility, with $9.2 million of outstanding letters
of credit, resulting in net available borrowing capacity under the Revolving Facility at December 31, 2016 of approximately $521.2
million.
On December 9, 2011, the Company completed a public offering of $350.0 million 4.2% senior notes due December 15,
2021 (“4.2% Senior Notes”). The net proceeds from the offering of $346.2 million, after deducting a $0.9 million issuance discount,
a $2.3 million underwriting commission and $0.6 million offering expenses, were used to repay $306.0 million of outstanding
bank indebtedness, with the balance used for general corporate purposes. The 4.2% Senior Notes bear interest at a rate of 4.2% per
annum, which is payable semi-annually in arrears on each June 15th and December 15th. The Company may redeem all or a portion
of the 4.2% Senior Notes at any time prior to maturity at the redemption prices set forth in the Note Indenture governing the
4.2% Senior Notes. The Company may issue additional debt from time to time pursuant to the Indenture. The Indenture and
4.2% Senior Notes contain covenants that limit the Company’s ability to, among other things, incur certain liens securing
indebtedness, engage in certain sale-leaseback transactions, and enter into certain consolidations, mergers, conveyances, transfers
or leases of all or substantially all the Company’s assets. The terms of the 4.2% Senior Notes also require the Company to make
an offer to repurchase the 4.2% Senior Notes upon a change of control triggering event (as defined in the Indenture) at a price
equal to 101% of their principal amount plus accrued and unpaid interest, if any.
On December 6, 2010, the Company completed a public offering of $300.0 million 4.5% senior notes due December 15,
2020 (“4.5% Senior Notes”). The net proceeds from the offering of $295.7 million, after deducting a $1.6 million issuance discount,
a $1.9 million underwriting commission and $0.8 million offering expenses, were used to repay $250.0 million of outstanding
bank indebtedness, with the balance used for general corporate purposes. The 4.5% Senior Notes bear interest at a rate of 4.5% per
annum, which is payable semi-annually in arrears on each June 15th and December 15th. The Company may redeem all or a portion
of the 4.5% Senior Notes at any time prior to maturity at the redemption prices set forth in the Note Indenture governing the
4.5% Senior Notes. The Company may issue additional debt from time to time pursuant to the Indenture. The Indenture and
4.5% Senior Notes contain covenants that limit the Company’s ability to, among other things, incur certain liens securing
indebtedness, engage in certain sale-leaseback transactions, and enter into certain consolidations, mergers, conveyances, transfers
or leases of all or substantially all the Company’s assets. The terms of the 4.5% Senior Notes also require the Company to make
an offer to repurchase the 4.5% Senior Notes upon a change of control triggering event (as defined in the Indenture) at a price
equal to 101% of their principal amount plus accrued and unpaid interest, if any.
Other borrowings of $1.3 million at December 31, 2016 consisted primarily of debt at international locations maintained for
working capital purposes. Interest is payable on the outstanding debt balances at rates ranging from 1.0% to 2.8% per annum.
There are two key financial covenants that the Company is required to maintain in connection with the Revolving Facility
and the Notes, a minimum interest coverage ratio of 3.0 to 1 and a maximum leverage ratio of 3.50 to 1, which is the ratio of the
56
Company’s consolidated total debt to its consolidated EBITDA. At December 31, 2016, the Company was in compliance with
both of these financial covenants. There are no financial covenants relating to the 4.5% Senior Notes or 4.2% Senior Notes;
however, both are subject to cross-default provisions.
Total borrowings at December 31, 2016 have scheduled maturities as follows:
(In thousands)
2017
2018
2019
2020
2021
Thereafter
Total borrowings
6.
$
$
1,046
239
9
469,579
350,000
200,000
1,020,873
Derivative Instruments
As of December 31, 2016 and 2015, the Company did not have any interest rate or foreign exchange contracts
outstanding. The type of cash flow hedges the Company has entered into includes interest rate exchange agreements that
effectively convert a portion of floating-rate debt to fixed-rate debt and are designed to reduce the impact of interest rate
changes on future interest expense.
The effective portion of gains or losses on interest rate exchange agreements is reported in accumulated other
comprehensive income (loss) in shareholders’ equity and reclassified into net income in the same period or periods in which the
hedged transaction affects net income. The remaining gain or loss in excess of the cumulative change in the present value of
future cash flows or the hedged item, if any, is recognized into net income during the period of change. See Note 14 for the
amount of loss reclassified into income for interest rate contracts for the years ended December 31, 2016, 2015 and 2014.
Fair values relating to derivative financial instruments reflect the estimated amounts that the Company would receive or
pay to sell or buy the contracts based on quoted market prices of comparable contracts at each balance sheet date.
On April 15, 2010, the Company entered into a forward starting interest rate contract with a notional amount of $300.0
million with a settlement date in December 2010. This contract was entered into in anticipation of the issuance of the
4.5% Senior Notes and was designed to lock in the market interest rate as of April 15, 2010. In December 2010, the Company
settled and paid this interest rate contract for $31.0 million. The $31.0 million is being amortized into interest expense over the
10 year term of the 4.5% Senior Notes, which results in an effective interest rate of 5.8%.
On July 12, 2011, the Company entered into a forward starting interest rate contract with a notional amount of $350.0
million and a settlement date of September 30, 2011. This contract was entered into in anticipation of the issuance of the 4.2%
Senior Notes and was designed to lock in the market interest rate as of July 12, 2011. On September 29, 2011, the Company
settled this interest rate contract for $34.7 million with a payment made on October 3, 2011. Simultaneously, the Company
entered into a separate interest rate contract with a notional amount of $350.0 million and a settlement date of February 28,
2012. The contract was entered into in anticipation of the expected issuance of the 4.2% Senior Notes and was designed to
maintain the market rate as of July 12, 2011. In December 2011, the Company settled and paid the September interest rate
contract for $4.0 million, resulting in a total settlement of $38.7 million. Of the $38.7 million, $0.8 million was recognized as
other expense in 2011 and the balance of $37.9 million is being amortized into interest expense over the 10 year term of the
4.2% Senior Notes, which results in an effective interest rate of 5.3%.
The amount of expense reclassified into interest expense for interest rate contracts for the years ended December 31,
2016, 2015 and 2014 is $6.9 million, $7.0 million and $7.2 million, respectively.
Approximately $6.7 million of the pre-tax amount included in accumulated other comprehensive loss in shareholders’
equity at December 31, 2016 will be recognized to net income over the next 12 months as the underlying hedged transactions
are realized.
57
7.
Fair Value Measurements
ASC 820, “Fair Value Measurements and Disclosures,” defines fair value, provides guidance for measuring fair value and
requires certain disclosures. This standard discusses valuation techniques, such as the market approach (comparable market prices),
the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of
an asset or replacement cost). The standard utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used
to measure fair value into three broad levels. The following is a brief description of those three levels:
•
Level 1:
Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
•
Level 2: Inputs, other than quoted prices that are observable for the asset or liability, either directly or indirectly. These
include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or
liabilities in markets that are not active.
•
Level 3:
Unobservable inputs that reflect the reporting entity’s own assumptions.
The following table summarizes the basis used to measure the Company’s financial assets (liabilities) at fair value on a
recurring basis in the balance sheets at December 31, 2016 and 2015:
Basis of Fair Value Measurements
Balance at
December 31,
2016
Level 1
Level 2
Level 3
(In thousands)
Available for sale securities
$
5,369
$
5,369
$
—
$
—
Basis of Fair Value Measurements
Balance at
December 31,
2015
Level 1
Level 2
Level 3
(In thousands)
Money market investments
Available for sale securities
Contingent consideration
$
21,931 $
4,794
(4,705)
21,931
4,794
—
$
—
—
—
$
—
—
(4,705)
There were no transfers of assets or liabilities between Level 1 and Level 2 in 2016 or 2015.
In determining the fair value of the contingent consideration potentially due on the acquisition of CPS, the Company used
probability weighted estimates of EBITDA during the earn-out period. The $4.7 million represented management’s best estimate
of the liability as of the opening balance sheet date and December 31, 2015, based on a range of outcomes of CPS’s 12 month
operating results, from July 1, 2015 to June 30, 2016. During the six months ended June 30, 2016, the Company re-evaluated the
contingent consideration arrangement and fully reversed the $4.7 million liability based on CPS’s actual operating results from
July 1, 2015 to June 30, 2016. The $4.7 million reversal was recognized as a benefit within Selling, general and administrative
expenses.
The carrying value of our cash and cash equivalents, accounts receivable, accounts payable and accrued expenses
approximates their fair values because of the short term nature of these instruments. At December 31, 2016, the fair value of the
outstanding indebtedness under our Revolving Facility, 3.2% Senior Notes, 3.37% Senior Notes, 4.5% Senior Notes and 4.2%
Senior Notes, based on quoted market prices and current market rates for debt with similar credit risk and maturity, was
approximately $1,029.9 million compared to the carrying value of $1,018.4 million. This fair value measurement is classified as
Level 2 within the fair value hierarchy since it is determined based upon significant inputs observable in the market, including
interest rates on recent financing transactions to entities with a credit rating similar to ours.
8.
Commitments and Contingencies
The Company leases certain office facilities, warehouses and data processing equipment under operating leases. Rental
expense totaled $18.6 million, $18.9 million and $19.2 million in 2016, 2015 and 2014, respectively.
58
The aggregate future minimum lease payments for operating and capital leases as of December 31, 2016 were as follows:
Operating
Capital
(In thousands)
2017
2018
2019
2020
2021
2022 and thereafter
$
$
16,923
14,238
9,521
7,668
5,701
19,106
73,157
$
$
1,055
243
9
—
—
—
1,307
Warranty costs are provided for at the time of sale. The warranty provision is based on historical costs and adjusted for
specific known claims. A rollforward of the warranty reserve is as follows:
2016
2015
2014
(In thousands)
Beginning balance January 1
Provision for warranties
Claim settlements
Other adjustments, including acquisitions, divestitures and currency
translation
Ending balance December 31
$
7,936 $
1,828
(3,539)
7,196 $
4,788
(3,864)
(597)
(184)
$
5,628
$
7,936
4,888
6,220
(3,823)
(89)
$
7,196
The Company is party to various legal proceedings arising in the ordinary course of business, none of which are expected
to have a material effect on its business, financial condition, results of operations or cash flow.
9.
Common and Preferred Stock
On December 1, 2015 the Company’s Board of Directors approved an increase in the authorized level for repurchases of
common stock by $300.0 million. Repurchases under the program will be funded with future cash flow generation or
borrowings available under the Revolving Facility. During 2016, the Company purchased a total of 0.7 million shares at a cost
of $55.0 million, compared to 2.8 million shares purchased at a cost of $210.5 million in 2015, of which $2.3 million was
settled in January 2016. As of December 31, 2016, there was $580 million of repurchase authorization remaining.
At December 31, 2016 and 2015, the Company had 150 million shares of authorized common stock, with a par value of
$.01 per share, and five million shares of authorized preferred stock, with a par value of $.01 per share. No preferred stock was
issued as of December 31, 2016 and 2015.
10.
Income Taxes
Pretax income for 2016, 2015 and 2014 was taxed in the following jurisdictions:
2016
2015
2014
(In thousands)
U.S.
Foreign
Total
$
$
59
265,260
103,252
368,512
$
$
285,399
106,946
392,345
$
$
275,334
117,106
392,440
The provision (benefit) for income taxes for 2016, 2015 and 2014, was as follows:
2016
2015
2014
(In thousands)
Current
U.S.
State and local
Foreign
Total current
Deferred
U.S.
State and local
Foreign
Total deferred
Total provision for income taxes
$
67,668
4,503
42,540
114,711
$
(6,249)
(331)
(10,728)
(17,308)
$
97,403
73,059
6,188
30,630
109,877
$
(3,176)
(1,708)
(3,709)
(8,593)
7,125
(1,017)
(6,447)
(339)
$
109,538
77,454
7,133
37,060
121,647
$
113,054
Deferred tax assets (liabilities) at December 31, 2016 and 2015 were:
2016
2015
(In thousands)
Employee and retiree benefit plans
Capital loss carryforwards
Depreciation and amortization
Inventories
Allowances and accruals
Interest rate exchange agreement
Other
Total gross deferred tax (liabilities)
Capital loss valuation allowance
Total deferred tax (liabilities), net of valuation allowances
$
$
42,950 $
18,668
(238,321)
37,393
—
(185,321)
11,519
9,338
10,442
(90)
(145,494)
(18,668)
(164,162) $
12,615
12,528
12,948
2,800
(107,037)
—
(107,037)
The deferred tax assets and liabilities recognized in the Company’s Consolidated Balance Sheets as of December 31,
2016 and 2015 were:
2016
2015
(In thousands)
Noncurrent deferred tax asset — Other noncurrent assets
Noncurrent deferred tax liabilities — Deferred income taxes
Net deferred tax liabilities
$
$
60
2,265 $
(166,427)
(164,162) $
3,446
(110,483)
(107,037)
The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate to
pretax income. The computed amount and the differences for 2016, 2015 and 2014 are as follows:
2016
2015
2014
(In thousands)
Pretax income
Provision for income taxes
Computed amount at statutory rate of 35%
State and local income tax (net of federal tax benefit)
Taxes on non-U.S. earnings-net of foreign tax credits
Effect of flow-through entities
U.S. business tax credits
Domestic activities production deduction
Deferred tax effect of foreign tax rate change
Capital loss on divestitures
Valuation allowance
Share-based payments
Other
Total provision for income taxes
$
368,512
$
$
128,979 $
4,070
(6,666)
(8,735)
(1,665)
(9,043)
—
(23,444)
$
$
137,321 $
5,033
(11,663)
(8,358)
(1,273)
(6,521)
(2,636)
392,440
137,354
4,875
(9,378)
(9,018)
(1,680)
(7,489)
—
—
—
17,973
(6,520)
2,454
97,403
392,345
—
—
(2,365)
$
109,538
—
—
(1,610)
$
113,054
The Company has $670 million and $715 million of undistributed earnings of non-U.S. subsidiaries as of December 31,
2016 and 2015, respectively. No deferred U.S. income taxes have been provided on these earnings as they are considered to be
reinvested for an indefinite period of time or will be repatriated when it is tax effective to do so. If these amounts were
distributed to the U.S., in the form of dividends or otherwise, the Company would be subject to additional U.S. income taxes,
which could be material. Determination of the amount of unrecognized deferred income tax liabilities on these earnings is not
practicable because of the complexities with the hypothetical calculation, and the amount of liability, if any, is dependent on
circumstances if and when remittance occurs. During the years ended December 31, 2016, 2015 and 2014, the Company
repatriated $28.8 million, $14.3 million and $6.5 million of foreign earnings, respectively, resulting in $2.7 million of
incremental tax expense, $0.3 million of incremental income tax expense and $0.2 million of incremental tax benefit,
respectively. These repatriations represent distributions of current year earnings and distributions from liquidating subsidiaries
and do not impact our representation that the undistributed earnings are permanently invested.
A reconciliation of the beginning and ending amount of unrecognized tax benefits for 2016, 2015 and 2014 is as follows:
2016
2015
2014
(In thousands)
Beginning balance January 1
Gross increase due to non-U.S. acquisitions
Gross increases for tax positions of prior years
Gross decreases for tax positions of prior years
Settlements
Lapse of statute of limitations
Ending balance December 31
$
$
61
7,228 $
—
201
(93)
(2,014)
(1,547)
3,775
$
3,619 $
3,772
1,256
—
(667)
(752)
7,228
$
5,124
—
834
(51)
(2,057)
(231)
3,619
We recognize interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2016,
2015 and 2014, we had approximately $0.1 million, $0.2 million and $0.7 million, respectively, of accrued interest related to
uncertain tax positions. As of December 31, 2016, 2015 and 2014, we had approximately $0.1 million, $0.3 million and $0.3
million, respectively, of accrued penalties related to uncertain tax positions.
The total amount of unrecognized tax benefits that would affect our effective tax rate if recognized is $1.8 million, $3.0
million and $2.9 million as of December 31, 2016, 2015 and 2014, respectively. The tax years 2010-2015 remain open to
examination by major taxing jurisdictions. Due to the potential for resolution of federal, state and foreign examinations, and the
expiration of various statutes of limitation, it is reasonably possible that the Company’s gross unrecognized tax benefits balance
may change within the next 12 months by a range of zero to $1.4 million.
The Company had net operating loss and credit carry forwards related to prior acquisitions for U.S. federal purposes at
December 31, 2016 and 2015 of $3.5 million and $4.8 million, respectively. The federal net operating loss carry forwards are
available for use against the Company’s consolidated federal taxable income and expire between 2021 and 2028. For nonU.S. purposes, the Company had net operating loss carry forwards at December 31, 2016 and 2015 of $25.6 million and $0.7
million, respectively, the majority of which relates to acquisitions. The entire balance of the non-U.S. net operating losses is
available to be carried forward. At December 31, 2016 and 2015, the Company had U.S. state net operating loss and credit carry
forwards of approximately $33.1 million and $27.0 million, respectively. If unutilized, the U.S. state net operating loss will
expire between 2019 and 2036. At December 31, 2016 and 2015, the Company recorded a valuation allowance against the
deferred tax asset attributable to the U.S. state net operating loss of $1.3 million and $1.0 million, respectively.
The Company had a capital loss carryover for U.S. federal purposes at December 31, 2016 of approximately $70.1 million.
U.S. capital loss carryovers can be carried back three years and forward five years, thus, if unutilized, the federal capital loss
carryover will expire in 2021. At December 31, 2016, the Company recorded a valuation allowance against the deferred tax asset
attributable to the federal capital loss carryover of $18.7 million. At December 31, 2016, the Company had U.S. state capital loss
carryovers of approximately $70.1 million. If unutilized, the U.S. state capital loss carryovers will expire between 2021 and 2031.
At December 31, 2016, the Company recorded a valuation allowance against the deferred tax assets attributable to the state capital
loss carryovers of $0.7 million. At December 31, 2016 and 2015, the Company had a foreign capital loss carry forward of
approximately $0.7 million and $0.9 million, respectively. The foreign capital loss can be carried forward indefinitely. At both
December 31, 2016 and 2015, the Company has a full valuation allowance against the deferred tax asset attributable to the foreign
capital loss.
11.
Business Segments and Geographic Information
IDEX has three reportable business segments: Fluid & Metering Technologies, Health & Science Technologies and
Fire & Safety/Diversified Products.
The Fluid & Metering Technologies segment designs, produces and distributes positive displacement pumps, flow meters,
injectors, and other fluid-handling pump modules and systems and provides flow monitoring and other services for the food,
chemical, general industrial, water & wastewater, agriculture and energy industries. The Health & Science Technologies
segment designs, produces and distributes a wide range of precision fluidics, rotary lobe pumps, centrifugal and positive
displacement pumps, roll compaction and drying systems used in beverage, food processing, pharmaceutical and cosmetics,
pneumatic components and sealing solutions, including very high precision, low-flow rate pumping solutions required in
analytical instrumentation, clinical diagnostics and drug discovery, high performance molded and extruded, biocompatible
medical devices and implantables, air compressors used in medical, dental and industrial applications, optical components and
coatings for applications in the fields of scientific research, defense, biotechnology, aerospace, telecommunications and
electronics manufacturing, laboratory and commercial equipment used in the production of micro and nano scale materials,
precision photonic solutions used in life sciences, research and defense markets, and precision gear and peristaltic pump
technologies that meet exacting original equipment manufacturer specifications. The Fire & Safety/Diversified Products
segment produces firefighting pumps, valves and controls, rescue tools, lifting bags and other components and systems for the
fire and rescue industry, engineered stainless steel banding and clamping devices used in a variety of industrial and commercial
applications, and precision equipment for dispensing, metering and mixing colorants and paints used in a variety of retail and
commercial businesses around the world.
Information on the Company’s business segments is presented below based on the nature of products and services
offered. The Company evaluates performance based on several factors, of which sales and operating income are the primary
financial measures. Intersegment sales are accounted for at fair value as if the sales were to third parties.
62
2016
NET SALES
Fluid & Metering Technologies
External customers
Intersegment sales
Total segment sales
Health & Science Technologies
External customers
Intersegment sales
Total segment sales
Fire & Safety/Diversified Products
External customers
Intersegment sales
Total segment sales
Intersegment eliminations
Total net sales
OPERATING INCOME (LOSS) (1)
Fluid & Metering Technologies
Health & Science Technologies
Fire & Safety/Diversified Products
Corporate office (2)
Total operating income
Interest expense
Other (income) expense - net
Income before taxes
$
848,708
393
849,101
2015
(In thousands)
$
744,380
429
744,809
$
$
$
$
$
$
$
$
$
63
$
737,011
1,985
738,996
898,530
1,058
899,588
747,186
4,835
752,021
519,955
54
520,009
(876)
2,113,043 $
423,712
203
423,915
(3,035)
2,020,668 $
502,051
698
502,749
(6,591)
2,147,767
214,242 $
153,722
121,888
(84,051)
405,801
45,616
(8,327)
368,512 $
204,506 $
157,948
115,745
(46,461)
431,738
41,636
(2,243)
392,345 $
216,886
152,999
130,494
(69,155)
431,224
41,895
(3,111)
392,440
2016
ASSETS
Fluid & Metering Technologies
Health & Science Technologies
Fire & Safety/Diversified Products
Corporate office (3)
Total assets
DEPRECIATION AND AMORTIZATION (4)
Fluid & Metering Technologies
Health & Science Technologies
Fire & Safety/Diversified Products
Corporate office and other
Total depreciation and amortization
CAPITAL EXPENDITURES
Fluid & Metering Technologies
Health & Science Technologies
Fire & Safety/Diversified Products
Corporate office and other
Total capital expenditures
859,945
847
860,792
2014
2015
(In thousands)
1,065,670
1,266,036
705,735
117,503
3,154,944
$
28,458
45,298
11,956
1,180
86,892
$
16,389
15,665
5,945
243
38,242
$
$
$
$
2014
1,125,266
1,108,302
448,867
123,008
2,805,443
$
27,662
42,827
6,051
1,580
78,120
$
22,846
13,104
5,804
2,022
43,776
$
$
$
$
1,026,238
1,101,155
510,841
265,229
2,903,463
26,453
42,478
6,583
1,393
76,907
18,215
19,161
6,761
3,860
47,997
(1) Segment operating income (loss) excludes net unallocated corporate operating expenses.
(2) 2016 includes a $22.3 million loss on the sale of businesses - net and 2015 includes an $18.1 million gain on the sale of
a business.
(3) 2014 balance has been reclassified to conform to the current presentation for ASU 2015-03.
(4) Excludes amortization of debt issuance expenses.
Information about the Company’s operations in different geographical regions for the years ended December 31, 2016,
2015 and 2014 is shown below. Net sales were attributed to geographic areas based on location of the customer and no country
outside the U.S. was greater than 10% of total revenues.
2016
2015
2014
(In thousands)
NET SALES
U.S.
North America, excluding U.S.
Europe
Asia
Other
Total net sales
LONG-LIVED ASSETS — PROPERTY, PLANT AND EQUIPMENT
U.S.
North America, excluding U.S.
Europe
Asia
Other
Total long-lived assets — net
64
$
$
$
$
1,067,333
84,836
517,179
340,624
103,071
2,113,043
152,504
1,533
71,681
21,793
305
247,816
$
$
$
$
1,015,277
85,852
490,435
325,507
103,597
2,020,668
144,508
643
69,082
26,498
214
240,945
$
$
$
$
1,068,758
95,917
527,975
337,668
117,449
2,147,767
139,702
814
54,088
24,912
27
219,543
12.
Restructuring
During the fourth quarter of 2016, the third and fourth quarters of 2015 and the fourth quarter of 2014, the Company recorded
restructuring costs as a part of restructuring initiatives that support the implementation of key strategic efforts designed to facilitate
long-term, sustainable growth through cost reduction actions, primarily consisting of employee reductions and facility
rationalization. The costs incurred related to these initiatives were included in Restructuring expenses in the Consolidated Statements
of Operations while the related accruals were included in Accrued expenses in the Consolidated Balance Sheets. Severance costs
primarily consisted of severance benefits through payroll continuation, COBRA subsidies, outplacement services, conditional
separation costs and employer tax liabilities, while exit costs primarily consisted of asset disposals or impairments and lease exit
costs.
2016 Initiative
During 2016 the Company recorded pre-tax restructuring expenses totaling $3.7 million related to the 2016 restructuring
initiative. These expenses consisted of employee severance related to employee reductions across various functional areas. The
2016 restructuring initiative included severance benefits for 129 employees. Severance payments are expected to be
substantially paid by the end of 2017 using cash from operations. The Company expects an additional $2 to $3 million of pretax restructuring expenses in the first quarter of 2017 related to the 2016 initiative.
Pre-tax restructuring expenses, comprised solely of severance costs, by segment for 2016 are as follows:
Total Restructuring Costs
(In thousands)
Fluid & Metering Technologies
Health & Science Technologies
Fire & Safety/Diversified Products
Corporate/Other
Total restructuring costs
$
932
1,117
1,425
200
3,674
$
2015 Initiative
During 2015 the Company recorded pre-tax restructuring expenses totaling $11.2 million related to the 2015 restructuring
initiative. These expenses consisted of employee severance related to employee reductions across various functional areas. The
2015 restructuring initiative included severance benefits for 208 employees. Severance payments are expected to be paid by
March 31, 2017 using cash from operations.
Pre-tax restructuring expenses, comprised solely of severance costs, by segment for 2015 are as follows:
Total Restructuring Costs
(In thousands)
Fluid & Metering Technologies
Health & Science Technologies
Fire & Safety/Diversified Products
Corporate/Other
Total restructuring costs
$
$
7,090
3,408
576
165
11,239
2014 Initiative
During 2014 the Company recorded pre-tax restructuring expenses in the fourth quarter totaling $13.7 million related to
the 2014 restructuring initiative. These expenses consisted of employee severance related to employee reductions across various
functional areas as well as exit costs and asset impairments. The 2014 restructuring initiative included severance benefits for
217 employees. Severance payments were fully paid by the end of 2015 using cash from operations.
65
Pre-tax restructuring expenses by segment for 2014 were as follows:
Exit Costs and Asset
Impairments
Severance Costs
Total
(In thousands)
Fluid & Metering Technologies
Health & Science Technologies
Fire & Safety/Diversified Products
Corporate/Other
Total restructuring costs
$
6,413
3,520
908
1,313
12,154
$
$
—
1,392
126
—
1,518
$
$
6,413
4,912
1,034
1,313
13,672
$
Restructuring accruals of $3.9 million and $6.6 million at December 31, 2016 and 2015, respectively, are reflected in
Accrued expenses in our Consolidated Balance Sheets as follows:
Restructuring
Initiatives
(In thousands)
Balance at January 1, 2015
Restructuring expenses
Payments, utilization and other
Balance at December 31, 2015
Restructuring expenses
Payments, utilization and other
Balance at December 31, 2016
13.
$
6,056
11,239
(10,659)
6,636
3,674
(6,417)
$
3,893
Share-Based Compensation
The Company maintains two share-based compensation plans for executives, non-employee directors and certain key
employees that authorize the granting of stock options, restricted stock, performance share units, and other types of awards
consistent with the purpose of the plans. The number of shares authorized for issuance under the Company’s plans as of
December 31, 2016 totaled 15.6 million, of which 5.4 million shares were available for future issuance. The Company’s policy
is to recognize compensation cost on a straight-line basis, assuming forfeitures, over the requisite service period for the entire
award.
Stock Options
Stock options granted under IDEX plans are generally non-qualified and are granted with an exercise price equal to the
market price of the Company’s stock at the date of grant. The majority of the options issued to employees become exercisable
in four equal installments, beginning one year from the date of grant, and generally expire 10 years from the date of grant.
Stock options granted to non-employee directors cliff vest after one year.
Weighted average option fair values and assumptions for the period are as follows:
Years Ended December 31,
Weighted average fair value of grants
Dividend yield
Volatility
Risk-free interest rate
Expected life (in years)
66
2016
2015
2014
$18.56
1.69%
29.70%
0.53% - 2.49%
5.91
$20.32
1.45%
29.90%
0.24% - 2.82%
5.93
$19.52
1.27%
30.36%
0.12% - 4.65%
5.89
The assumptions are as follows:
•
The Company estimated volatility using its historical share price performance over the contractual term of the option.
•
The Company uses historical data to estimate the expected life of the option. The expected life assumption for the
years ended December 31, 2016, 2015 and 2014 is an output of the Binomial lattice option-pricing model, which
incorporates vesting provisions, rate of voluntary exercise and rate of post-vesting termination over the contractual life
of the option to define expected employee behavior.
•
The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the
contractual life of the option. For the years ended December 31, 2016, 2015 and 2014, we present the range of riskfree one-year forward rates, derived from the U.S. treasury yield curve, utilized in the Binomial lattice option-pricing
model.
•
The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected
dividend yield for periods within the contractual life of the option.
A summary of the Company’s stock option activity as of December 31, 2016, and changes during the year ended
December 31, 2016 is presented as follows:
Weighted
Average
Price
Stock Options
Shares
Outstanding at January 1, 2016
Granted
Exercised
Forfeited/Expired
Outstanding at December 31, 2016
Vested and expected to vest at December 31, 2016
Exercisable at December 31, 2016
2,266,433 $
570,250
(675,525)
(173,212)
1,987,946
1,884,401
945,265
$
$
$
Weighted-Average
Remaining
Contractual Term
54.05
75.35
44.44
72.30
61.83
61.06
48.53
Aggregate
Intrinsic
Value
6.58
$
51,918,028
6.84
6.74
5.17
$
$
$
56,144,876
54,671,036
39,252,480
The intrinsic value for stock options outstanding and exercisable is defined as the difference between the market value of
the Company’s common stock as of the end of the period and the grant price. The total intrinsic value of options exercised in
2016, 2015 and 2014 was $26.5 million, $16.9 million and $20.0 million, respectively. In 2016, 2015 and 2014, cash received
from options exercised was $30.2 million, $19.2 million and $17.2 million, respectively, while the actual tax benefit realized for
the tax deductions from stock options exercised totaled $9.6 million, $6.1 million and $7.3 million, respectively.
Total compensation cost for stock options is recorded in the Consolidated Statements of Operations as follows:
2016
Cost of goods sold
Selling, general and administrative expenses
Total expense before income taxes
Income tax benefit
Total expense after income taxes
$
$
Years Ended December 31,
2015
(In thousands)
427 $
6,561
6,988
(2,213)
4,775 $
543 $
6,488
7,031
(2,208)
4,823 $
2014
581
6,245
6,826
(2,194)
4,632
As of December 31, 2016 there was $10.8 million of total unrecognized compensation cost related to stock options that is
expected to be recognized over a weighted-average period of 1.4 years.
Restricted Stock
Restricted stock awards generally cliff vest after three years for employees and non-employee directors. Unvested
restricted stock carries dividend and voting rights and the sale of the shares is restricted prior to the date of vesting. Dividends
are paid on restricted stock awards and their fair value is equal to the market price of the Company’s stock at the date of the
67
grant. A summary of the Company’s restricted stock activity as of December 31, 2016, and changes during the year ending
December 31, 2016 is as follows:
Restricted Stock
Weighted-Average
Grant Date Fair
Value
Shares
Unvested at January 1, 2016
Granted
Vested
Forfeited
Unvested at December 31, 2016
272,755 $
76,970
(105,382)
(26,445)
217,898
65.90
78.86
51.90
74.61
76.19
$
Total compensation cost for restricted stock is recorded in the Consolidated Statements of Operations as follows:
Years Ended December 31,
2016
2015
2014
(In thousands)
Cost of goods sold
Selling, general and administrative expenses
Total expense before income taxes
Income tax benefit
Total expense after income taxes
$
$
390 $
4,401
4,791
(1,410)
3,381
341 $
5,213
5,554
(1,604)
$
3,950
$
369
6,182
6,551
(1,630)
4,921
As of December 31, 2016 there was $5.3 million of total unrecognized compensation cost related to restricted stock that
is expected to be recognized over a weighted-average period of 1.1 years.
Cash-Settled Restricted Stock
The Company also maintains a cash-settled share based compensation plan for certain employees. Cash-settled restricted
stock awards generally cliff vest after three years. Dividend equivalents are paid on certain cash-settled restricted stock awards.
A summary of the Company’s unvested cash-settled restricted stock activity as of December 31, 2016, and changes during the
year ending December 31, 2016 is as follows:
Cash-Settled Restricted Stock
Shares
Unvested at January 1, 2016
Granted
Vested
Forfeited
Unvested at December 31, 2016
Weighted-Average
Fair Value
110,860 $
41,060
(36,660)
(11,470)
103,790
68
$
76.61
90.06
72.91
90.06
90.06
Total compensation cost for cash-settled restricted stock is recorded in the Consolidated Statements of Operations as
follows:
Years Ended December 31,
2016
2015
2014
(In thousands)
Cost of goods sold
Selling, general and administrative expenses
Total expense before income taxes
Income tax benefit
Total expense after income taxes
$
764 $
2,224
2,988
(419)
753 $
1,765
2,518
(355)
1,384
2,735
4,119
(603)
$
2,569
2,163
3,516
$
$
At December 31, 2016 and 2015, the Company has $3.0 million and $3.2 million, respectively, included in Accrued
expenses in the Consolidated Balance Sheets and $2.4 million and $1.8 million, respectively, included in Other non-current
liabilities.
Performance Share Units
Beginning in 2013 the Company granted performance share units to selected key employees that may be earned based on
IDEX total shareholder return over the three-year period following the date of grant. Performance share units are expected to be
made annually and are paid out at the end of a three-year period based on the Company’s performance. Performance is measured
by determining the percentile rank of the total shareholder return of IDEX common stock in relation to the total shareholder return
of the S&P Midcap 400 Industrial Group (for awards granted prior to 2016) or the Russell Midcap Index (for awards granted in
2016) for the three-year period following the date of grant. The payment of awards following the three-year award period will be
based on performance achieved in accordance with the scale set forth in the plan agreement and may range from 0 percent to 250
percent of the initial grant. A target payout of 100 percent is earned if total shareholder return is equal to the 50th percentile of the
peer group. Performance share units earn dividend equivalents for the award period, which will be paid to participants with the
award payout at the end of the period based on the actual number of performance share units that are earned. Payments made at
the end of the award period will be in the form of stock for performance share units and will be in cash for dividend equivalents.
The Company’s performance share awards are considered performance condition awards and the grant date fair value of the awards,
based on a Monte Carlo simulation model, is expensed ratably over the three-year term of the awards. The Company granted
approximately 0.1 million of performance share units in each of 2016, 2015 and 2014.
Weighted average performance share unit fair values and assumptions for the period specified are as follows:
Years Ended December 31,
Weighted average fair value of grants
Dividend yield
Volatility
Risk-free interest rate
Expected life (in years)
2016
2015
2014
$111.42
—%
17.99%
0.89%
2.86
$95.07
—%
19.14%
1.01%
2.86
$94.55
—%
26.41%
0.65%
2.88
The assumptions are as follows:
•
The Company estimated volatility using its historical share price performance over the remaining performance period
as of the grant date.
•
The Company uses a Monte Carlo simulation model that uses an expected life commensurate with the performance
period. As a result, the expected life of the performance share units was assumed to be the period from the grant date
to the end of the performance period.
•
The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant with a term
commensurate with the remaining performance period.
69
•
Total Shareholder Return is determined assuming that dividends are reinvested in the issuing entity over the
performance period, which is mathematically equivalent to utilizing a 0% dividend yield.
A summary of the Company’s performance share unit activity as of December 31, 2016, and changes during the year
ending December 31, 2016 is as follows:
Performance Share Units
WeightedAverage
Grant Date Fair
Value
Shares
Unvested at January 1, 2016
Granted
Vested
Forfeited
Unvested at December 31, 2016
146,275 $
85,130
(63,325)
(31,025)
137,055
$
94.80
111.42
94.55
99.52
104.18
Awards that vested in 2016 will result in 89,288 shares being issued in 2017.
Total compensation cost for performance share units is as follows:
Years Ended December 31,
2016
2015
2014
(In thousands)
Cost of goods sold
Selling, general and administrative expenses
Total expense before income taxes
Income tax benefit
Total expense after income taxes
$
$
— $
5,559
5,559
(1,859)
3,700
— $
4,946
4,946
(1,670)
$
3,276
$
—
3,220
3,220
(1,081)
2,139
As of December 31, 2016 there was $6.3 million of total unrecognized compensation cost related to performance shares
that is expected to be recognized over a weighted-average period of 1.0 year.
14. Other Comprehensive Income (Loss)
The components of Other comprehensive income (loss) are as follows:
For the Year Ended December 31, 2016
Pre-tax
Tax
Net of tax
For the Year Ended December 31, 2015
Pre-tax
Tax
Net of tax
(In thousands)
Foreign currency translation adjustments
Cumulative translation adjustment
Reclassification of foreign currency translation to
earnings upon sale of business
Foreign currency translation adjustments
Pension and other postretirement adjustments
Net gain (loss) arising during the year
Amortization/recognition of settlement loss
Pension and other postretirement adjustments
Reclassification adjustments for derivatives
Total other comprehensive income (loss)
$ (76,822) $
—
14,257
(62,565)
—
—
(1,927)
7,083
5,156
6,851
789
(2,896)
(2,107)
(2,490)
$ (76,822) $ (63,441) $
14,257
(62,565)
(4,725)
(68,166)
(1,138)
8,318
4,939
13,257
7,030
4,187
3,049
4,361
—
$ (63,441)
—
—
(4,725)
(68,166)
(2,411)
(1,431)
(3,842)
(2,499)
5,907
3,508
9,415
4,531
$ (50,558) $ (4,597) $ (55,155) $ (47,879) $ (6,341) $ (54,220)
70
For the Year Ended December 31, 2014
Pre-tax
Tax
Net of tax
(In thousands)
Foreign currency translation adjustments
Cumulative translation adjustment
Pension and other postretirement adjustments
Net gain (loss) arising during the year
Amortization/recognition of settlement loss
$ (77,024) $
(26,424)
3,113
(23,311)
Pension and other postretirement adjustments, net
Reclassification adjustments for derivatives
Total other comprehensive income (loss)
—
7,767
(915)
$ (77,024)
(18,657)
2,198
(16,459)
6,852
(2,713)
7,223
4,510
$ (93,112) $ 4,139 $ (88,973)
Amounts reclassified from accumulated other comprehensive income (loss) to net income are summarized as follows:
For the Years Ended December 31,
2016
Foreign currency translation:
Reclassification upon sale of business
Total before tax
Provision for income taxes
Total net of tax
Pension and other postretirement plans:
Amortization of service cost
Total before tax
Provision for income taxes
Total net of tax
Derivatives:
Reclassification adjustments
Total before tax
Provision for income taxes
Total net of tax
15.
$ 14,257
14,257
—
$ 14,257
2015
$ (4,725) $
(4,725)
—
$ (4,725) $
$
7,083 $ 4,939 $
7,083
4,939
(1,431)
(2,896)
$ 4,187 $ 3,508 $
2014
Income Statement Caption
—
—
—
—
Loss (gain) on sale of businesses - net
3,113 Selling, general and administrative expense
3,113
(915)
2,198
$
6,851 $ 7,030 $ 7,223 Interest expense
6,851
7,030
7,223
(2,499)
(2,713)
(2,490)
$ 4,361 $ 4,531 $ 4,510
Retirement Benefits
The Company sponsors several qualified and nonqualified pension plans and other postretirement plans for its employees.
The Company uses a measurement date of December 31 for its defined benefit pension plans and post retirement medical plans.
The Company employs the measurement date provisions of ASC 715, Compensation-Retirement Benefits, which require the
measurement date of plan assets and liabilities to coincide with the sponsor’s year end.
During 2016, the Company offered a voluntary lump-sum pension payment opportunity to certain terminated vested U.S.
pension plan participants. Total lump-sum payments of $11.0 million were made for those participants electing to receive lump
sums using pension plan assets. The Company recognized pretax settlement losses of $3.5 million in the fourth quarter of 2016
for those plans where the settlement payment exceeded the sum of the plans' service and interest costs.
The following table provides a reconciliation of the changes in the benefit obligations and fair value of plan assets over
the two-year period ended December 31, 2016, and a statement of the funded status at December 31 for both years.
71
Pension Benefits
Other Benefits
2016
U.S.
2015
Non-U.S.
2016
U.S.
2015
Non-U.S.
(In thousands)
CHANGE IN BENEFIT OBLIGATION
Obligation at January 1
$
98,476 $
Service cost
1,016
Interest cost
3,043
Plan amendments
—
Benefits paid
(3,140)
Actuarial loss (gain)
1,987
Currency translation
—
Settlements
(11,126)
Acquisition/Divestiture
—
Other
—
Obligation at December 31
CHANGE IN PLAN ASSETS
Fair value of plan assets at
January 1
Actual return on plan assets
$
$
90,256
$
77,575 $
6,740
3,639
(3,140)
—
(11,126)
—
—
58,063 $
1,627
1,429
—
(2,023)
102,312 $
1,279
3,770
113
(3,985)
(5,013)
6,844
(6,988)
(819)
—
—
—
—
29,491
140
87,764
69,488 $
1,506
1,734
—
(2,448)
(6,909)
(5,308)
$
98,476
20,645 $
2,470
1,974
(2,023)
(4,108)
(819)
52
—
5,480
—
—
—
—
$
58,063
79,687 $
(2,587)
Employer contributions
Benefits paid
Currency translation
Settlements
Acquisition/Divestiture
14,307
Other
140
Fair value of plan assets at
December 31
$
73,688 $
32,586 $
Funded status at December 31
(55,178) $
$
(16,568) $
COMPONENTS ON THE CONSOLIDATED BALANCE SHEETS
Current liabilities
(1,005) $
$
(729) $
Other noncurrent liabilities
(54,173)
(15,839)
Net liability at December 31
(55,178) $
$
(16,568) $
20,400 $
601
811
—
(718)
(1,990)
$
24,636
22,152 $
205
1,837
(2,448)
(1,101)
4,460
(3,985)
—
—
—
—
22,855
673
833
—
(622)
(2,966)
(373)
—
—
—
$
20,400
— $
—
718
(718)
—
—
622
(622)
—
—
—
—
—
—
—
—
—
—
—
77,575 $
(20,901) $
20,645 $
(37,418) $
— $
(24,636) $
—
(20,400)
(743) $
(20,158)
(20,901) $
(875) $
(36,543)
(37,418) $
(1,044) $
(23,592)
(24,636) $
(911)
(19,489)
(20,400)
The accumulated benefit obligation (“ABO”) for all defined benefit pension plans was $176.7 million and $150.4 million
at December 31, 2016 and 2015, respectively.
The weighted average assumptions used in the measurement of the Company’s benefit obligation at December 31, 2016
and 2015 were as follows:
Non-U.S.
Plans
U.S. Plans
2016
Discount rate
Rate of compensation increase
3.91%
4.00%
72
2015
4.12%
4.00%
2016
1.76%
2.29%
2015
2.99%
2.98%
The pretax amounts recognized in Accumulated other comprehensive income (loss) on the Consolidated Balance Sheets
as of December 31, 2016 and 2015 were as follows:
Pension Benefits
Other Benefits
2016
U.S.
2015
Non-U.S.
U.S.
2016
2015
Non-U.S
(In thousands)
Prior service cost (credit)
Net loss
Total
$
$
110
27,860
27,970
$
$
(77) $
(17,643)
(17,720) $
135
33,461
33,596
(38) $
15,330
15,292 $
$
$
(849) $
(3,852)
(4,701) $
(1,215)
(2,197)
(3,412)
The amounts in Accumulated other comprehensive income (loss) on the Consolidated Balance Sheet as of December 31,
2016, that are expected to be recognized as components of net periodic benefit cost during 2017 are as follows:
Non-U.S.
Pension Benefit
Plans
U.S. Pension
Benefit Plans
Other
Benefit Plans
Total
(In thousands)
Prior service cost (credit)
Net loss
Total
$
$
24
2,542
2,566
$
9
1,493
1,502
$
(366) $
(427)
(793) $
$
$
(333)
3,608
3,275
The components of, and the weighted average assumptions used to determine, the net periodic benefit cost for the plans in
2016, 2015 and 2014 are as follows:
Pension Benefits
2016
U.S.
2015
Non-U.S.
U.S.
2014
Non-U.S.
U.S.
Non-U.S.
(In thousands)
Service cost
Interest cost
Expected return on plan assets
Settlement loss recognized
Net amortization
Net periodic benefit cost
$
$
1,016 $
3,043
(4,777)
3,339
3,226
5,847 $
1,627 $
1,429
(993)
215
1,008
3,286 $
1,279 $
3,770
(4,910)
—
3,422
3,561
1,506 $
1,734
(1,114)
—
1,931
4,057
$
1,162 $
4,037
(5,430)
—
2,187
1,956
$
$
1,331
2,345
(1,297)
—
1,400
3,779
Other Benefits
2016
2015
2014
(In thousands)
Service cost
Interest cost
Net amortization
Net periodic benefit cost
$
$
601 $
811
(705)
707
$
U.S. Plans
2016
Discount rate
Expected return on plan assets
Rate of compensation increase
4.12%
6.50%
4.00%
673 $
833
(414)
1,092
$
714
932
(474)
1,172
Non-U.S. Plans
2015
2014
3.78%
6.50%
4.00%
73
4.61%
7.00%
4.00%
2016
2.99%
4.58%
2.98%
2015
2.66%
5.19%
3.00%
2014
4.03%
5.83%
3.14%
The pretax change recognized in Accumulated other comprehensive income (loss) on the Consolidated Balance Sheet in
2016 is as follows:
Other
Benefits
Pension Benefits
U.S.
Non-U.S.
(In thousands)
Net gain (loss) in current year
Prior service cost
Amortization of prior service cost (credit)
Amortization of net loss (gain)
Exchange rate effect on amounts in OCI
Total
$
$
(23) $
—
24
6,541
—
6,542 $
(5,367) $
—
(15)
1,239
1,468
(2,675) $
1,990
—
(366)
(340)
5
1,289
The discount rates for our plans are derived by matching the plan’s cash flows to a yield curve that provides the
equivalent yields on zero-coupon bonds for each maturity. The discount rate selected is the rate that produces the same present
value of cash flows.
In selecting the expected rate of return on plan assets, the Company considers the historical returns and expected returns
on plan assets. The expected returns are evaluated using asset return class, variance and correlation assumptions based on the
plan’s target asset allocation and current market conditions.
Prior service costs are amortized on a straight-line basis over the average remaining service period of active participants.
Gains and losses in excess of 10% of the greater of the benefit obligation or the market value of assets are amortized over the
average remaining service period of active participants.
Costs of defined contribution plans were $10.1 million, $10.3 million and $9.1 million for 2016, 2015 and 2014,
respectively.
The Company, through its subsidiaries, participates in certain multi-employer pension plans covering approximately 381
participants under U.S. collective bargaining agreements. None of these plans are considered individually significant to the
Company as contributions to these plans totaled $1.3 million, $1.0 million, and $1.0 million for 2016, 2015 and 2014,
respectively.
For measurement purposes, a 6.58% weighted average annual rate of increase in the per capita cost of covered health care
benefits was assumed for 2016. The rate was assumed to decrease gradually each year to a rate of 4.50% for 2037, and remain
at that level thereafter. Assumed health care cost trend rates have an effect on the amounts reported for the health care plans. A
1% increase in the assumed health care cost trend rates would increase the service and interest cost components of the net
periodic benefit cost by $0.2 million and the health care component of the accumulated postretirement benefit obligation by
$2.1 million. A 1% decrease in the assumed health care cost trend rate would decrease the service and interest cost components
of the net periodic benefit cost by $0.1 million and the health care component of the accumulated postretirement benefit
obligation by $1.8 million.
74
Plan Assets
The Company’s pension plan weighted average asset allocations at December 31, 2016 and 2015, by asset category, were
as follows:
U.S. Plans
Non-U.S. Plans
2016
Equity securities
Fixed income securities
Cash/Commingled Funds/Other (1)
Total
2015
44%
43%
13%
100%
2016
49%
49%
2%
100%
2015
24%
26%
50%
100%
36%
44%
20%
100%
The basis used to measure the defined benefit plans’ assets at fair value at December 31, 2016 and 2015 is summarized as
follows:
Basis of Fair Value Measurement
Outstanding
Balances
Level 1
As of December 31, 2016
Level 2
Level 3
(In thousands)
Equity
U.S. Large Cap
U.S. Small / Mid Cap
International
Fixed Income
U.S. Intermediate
U.S. Short Duration
U.S. High Yield
International
Other Commingled Funds (1)
$
15,345
8,920
16,282
10,014
10,160
9,343
10,310
14,180
10,382
1,338
106,274
Cash and Equivalents
Other
$
$
$
15,345
7,111
10,647
9,943
10,160
7,924
3,627
—
9,660
—
74,417
(1) Other commingled funds represent pooled institutional investments in non-U.S. plans.
75
$
$
—
1,809
5,635
71
—
1,419
6,683
—
722
1,338
17,677
$
$
—
—
—
—
—
—
—
14,180
—
—
14,180
Basis of Fair Value Measurement
Outstanding
Balances
Level 1
As of December 31, 2015
Level 2
Level 3
(In thousands)
Equity
U.S. Large Cap
U.S. Small / Mid Cap
International
Fixed Income
U.S. Intermediate
U.S. Short Duration
U.S. High Yield
International
$
23,465
10,184
11,986
$
15,000
8,935
7,758
15,249
1,829
3,836
Cash and Equivalents
Other
$
98,242
23,465
7,482
7,786
$
15,000
8,935
6,922
7,241
1,829
—
$
78,660
—
2,702
4,200
$
—
—
836
8,008
—
3,836
$
19,582
—
—
—
—
—
—
—
—
—
$
—
Equities that are valued using quoted prices are valued at the published market prices. Equities in a common collective
trust or a registered investment company that are valued using significant other observable inputs are valued at the net asset
value (“NAV”) provided by the fund administrator. The NAV is based on the value of the underlying assets owned by the fund
minus its liabilities. Fixed income securities that are valued using significant other observable inputs are valued at prices
obtained from independent financial service industry-recognized vendors.
Investment Policies and Strategies
The investment objective of the plan, consistent with prudent standards for preservation of capital and maintenance of
liquidity, is to earn the highest possible total rate of return consistent with the plan’s tolerance for risk. The general asset
allocation guidelines for plan assets are that “equities” will constitute from 40% to 60% of the market value of total fund assets
with a target of 44%, and “fixed income” obligations, including cash, will constitute from 40% to 60% with a target of 56%.
The term “equities” includes common stock, convertible bonds and convertible stock. The term “fixed income” includes
preferred stock and/or contractual payments with a specific maturity date. The Company strives to maintain asset allocations
within the designated ranges by conducting periodic reviews of fund allocations and plan liquidity needs, and rebalancing the
portfolio accordingly. Diversification of assets is employed to ensure that adverse performance of one security or security class
does not have an undue detrimental impact on the portfolio as a whole. Diversification is interpreted to include diversification
by type, characteristic and number of investments, as well as by investment style of designated investment fund managers. No
restrictions are placed on the selection of individual investments by the investment fund managers. The total fund performance
and the performance of the investment fund managers is reviewed on a regular basis, using appointed professional independent
advisors. As of December 31, 2016 and 2015, there were no shares of the Company’s stock held in plan assets.
Cash Flows
The Company expects to contribute approximately $5.8 million to its defined benefit plans and $0.1 million to its other
postretirement benefit plans in 2017. The Company also expects to contribute approximately $10.0 million to its defined
contribution plan and $8.4 million to its 401(k) savings plan in 2017.
Estimated Future Benefit Payments
The future estimated benefit payments for the next five years and the five years thereafter are as follows: 2017 — $14.4
million; 2018 — $10.6 million; 2019 — $10.3 million; 2020 — $10.8 million; 2021 — $10.6 million; 2022 to 2026 — $52.1
million.
76
16.
Quarterly Results of Operations (Unaudited)
The unaudited quarterly results of operations for the years ended December 31, 2016 and 2015 are as follows:
2016 Quarters
2015 Quarters
First
Second
Third
Fourth
First
$ 502,572
223,335
102,557
68,130
$
0.90
$
0.89
$ 549,696
244,058
112,976
75,759
$
1.00
$
0.99
$ 530,356
230,889
108,857
69,873
$
0.92
$
0.91
$ 530,419
232,485
81,411
57,347
$
0.75
$
0.75
$ 502,198
226,041
101,757
65,954
$
0.84
$
0.84
75,749
75,690
75,819
75,955
76,699
76,674
76,880
76,806
Second
Third
Fourth
$ 514,881
231,615
109,909
69,585
$
0.89
$
0.89
$ 503,791
223,260
121,813
79,505
$
1.03
$
1.02
$ 499,798
223,399
98,259
67,763
$
0.89
$
0.88
77,996
77,466
76,831
76,211
78,856
78,297
77,646
77,091
(In thousands, except per share amounts)
Net sales
Gross profit
Operating income
Net income
Basic EPS
Diluted EPS
Basic weighted average
shares outstanding
Diluted weighted
average shares
outstanding
(1) Quarterly data includes acquisition of Novotema (June 2015), Alfa Valvole (June 2015), CiDRA Precision Services (July
2015), Akron Brass (March 2016), AWG Fittings (July 2016) and SFC Koenig (September 2016) from the date of acquisition.
Quarterly data also includes the results of Ismatec (July 2015), Hydra-Stop (July 2016), CVI Japan (September 2016), IETG
(October 2016) and CVI Korea (December 2016) through the date of disposition.
17.
Subsequent Events
On January 31, 2017 the Company entered into four forward contracts with a combined notional value of €180
million and a settlement date of March 31, 2017. These contracts were executed to minimize the earnings impact due to foreign
currency fluctuations between the Swiss Franc and the Euro associated with certain intercompany loans that were established in
conjunction with the SFC Koenig acquisition.
77
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A.
Controls and Procedures.
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be
disclosed in the Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods
specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s
management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure.
As required by SEC Rule 13a-15(b), the Company carried out an evaluation, under the supervision and with the
participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of
the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period
covered by this report. Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded
that the Company’s disclosure controls and procedures were effective as of December 31, 2016.
Management’s Report on Internal Control Over Financial Reporting appearing on page 35 of this report is incorporated
into this Item 9A by reference.
There has been no change in the Company’s internal control over financial reporting during the Company’s most recent
fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over
financial reporting.
Item 9B.
Other Information.
None.
78
PART III
Item 10.
Directors, Executive Officers and Corporate Governance.
Information under the headings “Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance,”
and the information under the subheading “Information Regarding the Board of Directors and Committees,” in the 2017 Proxy
Statement is incorporated into this Item 10 by reference. Information regarding executive officers of the Company is located in
Part I, Item 1, of this report under the caption “Executive Officers of the Registrant.”
The Company has adopted a Code of Business Conduct and Ethics applicable to the Company’s directors, officers
(including the Company’s principal executive officer, principal financial officer and principal accounting officer) and
employees. The Code of Business Conduct and Ethics, along with the Audit Committee Charter, Nominating and Corporate
Governance Committee Charter, Compensation Committee Charter and Corporate Governance Guidelines are available on the
Company’s website at www.idexcorp.com under “Investor Relations.” In the event we amend or waive any of the provisions of
the Code of Business Conduct and Ethics applicable to our principal executive officer, principal financial officer or principal
accounting officer, we intend to disclose the same on the Company’s website.
Item 11.
Executive Compensation.
Information under the heading “Executive Compensation” in the 2017 Proxy Statement is incorporated into this Item 11
by reference.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Information under the heading “Security Ownership” in the 2017 Proxy Statement is incorporated into this Item 12 by
reference.
Equity Compensation Plan Information
Information with respect to the Company’s equity compensation plans as of December 31, 2016 is as follows:
Number of Securities
To be Issued Upon
Exercise of
Outstanding Options,
Warrants and Rights
Plan Category
Equity compensation plans approved by the Company’s
stockholders
2,400,384
Weighted-Average
Exercise Price of
Outstanding
Options, Warrants
and Rights
$
61.83
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
(1)
Plans
5,382,493
(1) Includes an indeterminate number of shares underlying deferred compensation units (“DCUs”) granted under the
Directors Deferred Compensation Plan and Deferred Compensation Plan for Non-officer Presidents which are issuable under
the Company’s Incentive Award Plan. Also includes an indeterminate number of shares underlying DCUs granted under the
Deferred Compensation Plan for Officers, which shares are issuable under the Incentive Award Plan. The number of DCUs
granted under these plans is determined by dividing the amount deferred by the closing price of the common stock the day
before the date of deferral. The DCUs are entitled to receive dividend equivalents which are reinvested in DCUs based on the
same formula for investment of a participant’s deferral.
Item 13.
Certain Relationships and Related Transactions, and Director Independence.
Information under the heading “Information Regarding the Board of Directors and Committees” in the 2017 Proxy
Statement is incorporated into this Item 13 by reference.
Item 14.
Principal Accountant Fees and Services.
Information under the heading “Principal Accountant Fees and Services” in the 2017 Proxy Statement is incorporated into
this Item 14 by reference.
79
PART IV
Item 15.
Exhibits and Financial Statement Schedules.
(A) 1. Financial Statements
Consolidated financial statements filed as part of this report are listed under Part II. Item 8. “Financial Statements
and Supplementary Data.”
2. Financial Statement Schedules
Financial statement schedules are omitted because they are not applicable, not required, or because the required
information is included in the Consolidated Financial Statements of the Company or the Notes thereto.
3. Exhibits
The exhibits filed with this report are listed on the “Exhibit Index.”
(B) Exhibit Index
Reference is made to the Exhibit Index beginning on page 83 hereof.
80
Item 16.
Form 10-K Summary.
None.
81
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
IDEX CORPORATION
By: /s/
WILLIAM K. GROGAN
William K. Grogan
Senior Vice President and Chief Financial Officer
Date: February 23, 2017
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ ANDREW K. SILVERNAIL
Andrew K. Silvernail
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
February 23, 2017
/s/ WILLIAM K. GROGAN
William K. Grogan
Senior Vice President and Chief Financial
Officer (Principal Financial Officer)
February 23, 2017
/s/ MICHAEL J. YATES
Vice President and
Chief Accounting Officer
(Principal Accounting Officer)
February 23, 2017
Michael J. Yates
/s/ MARK A. BUTHMAN
Mark A. Buthman
Director
/s/ WILLIAM M. COOK
William M. Cook
Director
/s/ KATRINA L. HELMKAMP
Katrina L. Helmkamp
Director
/s/ ERNEST J. MROZEK
Ernest J. Mrozek
Director
/s/ DAVID C. PARRY
David C. Parry
Director
/s/ LIVINGSTON L. SATTERTHWAITE
Livingston L. Satterthwaite
Director
/s/ CYNTHIA J. WARNER
Cynthia J. Warner
Director
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February 23, 2017
February 23, 2017
February 23, 2017
February 23, 2017
February 23, 2017
February 23, 2017
February 23, 2017
Exhibit Index
Exhibit
Number
3.1
Description
Restated Certificate of Incorporation of IDEX Corporation (incorporated by reference to Exhibit No. 3.1 to
the Registration Statement on Form S-1 of IDEX, et al., Registration No. 33-21205, as filed on April 21,
1988)
3.1(a)
Amendment to Restated Certificate of Incorporation of IDEX Corporation (incorporated by reference to
Exhibit No. 3.1 (a) to the Quarterly Report of IDEX on Form 10-Q for the quarter ended March 31, 1996,
Commission File No. 1-10235)
3.1(b)
Amendment to Restated Certificate of Incorporation of IDEX Corporation (incorporated by reference to
Exhibit No. 3.1 (b) to the Current Report of IDEX on Form 8-K filed March 24, 2005, Commission File
No. 1-10235)
3.2
Amended and Restated By-Laws of IDEX Corporation (incorporated by reference to Exhibit No. 3.1 to the
Current Report of IDEX on Form 8-K filed November 14, 2011, Commission File No. 1-10235)
4.1
Specimen Certificate of Common Stock of IDEX Corporation (incorporated by reference to Exhibit No. 4.3
to the Registration Statement on Form S-2 of IDEX, et al., Registration No. 33-42208, as filed on
September 16, 1991)
4.2
Credit Agreement, dated as of June 23, 2015, among IDEX Corporation, Bank of America N.A. as Agent
and Issuing Bank, and the Other Financial Institutions Party Hereto (incorporated by reference to Exhibit
10.1 to the Current Report of IDEX on Form 8-K filed June 25, 2015, Commission File No. 1-10235)
4.3
Indenture between IDEX Corporation and Wells Fargo Bank, National Association, as Trustee, dated as of
December 6, 2010 (Debt Securities) (incorporated by reference to Exhibit No. 4.1 to the Current Report of
IDEX on Form 8-K filed December 7, 2010, Commission File No. 1-10235)
4.4
First Supplemental Indenture between IDEX Corporation and Wells Fargo Bank, National Association, as
Trustee, dated as of December 6, 2010 (as to 4.5% Senior Notes due 2020) (incorporated by reference to
Exhibit No. 4.2 to the Current Report of IDEX on Form 8-K filed December 7, 2010, Commission File
No. 1-10235)
4.5
Second Supplemental Indenture between IDEX Corporation and Wells Fargo Bank, National Association,
as Trustee, dated as of December 13, 2011 (as to 4.2% Senior Notes due 2021) (incorporated by reference
to Exhibit No. 4.1 to the Current Report of IDEX on Form 8-K filed December 14, 2011, Commission File
No. 1-10235)
4.6
Note Purchase Agreement, dated June 13, 2016, between IDEX Corporation and the Purchasers listed in
Schedule A thereto (incorporated by reference in Exhibit No. 4.1 to the Current Report of IDEX on Form 8K filed June 15, 2016, Commission File No. 1-10235)
10.1**
Revised and Restated IDEX Management Incentive Compensation Plan for Key Employees Effective
January 1, 2013 (incorporated by reference to Exhibit 10.2 to the Current Report of IDEX on Form 8-K
filed February 20, 2013, Commission File No. 1-10235)
10.2**
Form of Indemnification Agreement of IDEX Corporation (incorporated by reference to Exhibit No. 10.23
to the Registration Statement on Form S-1 of IDEX, et al., Registration No. 33-28317, as filed on April 26,
1989, Commission File No. 1-10235)
10.3**
IDEX Corporation Amended and Restated Stock Option Plan for Outside Directors, adopted by resolution
of the Board of Directors dated as of November 20, 2003 (incorporated by reference to Exhibit 10.6 (a) to
the Annual Report of IDEX on Form 10-K for the year ended December 31, 2003, Commission File
No. 1-10235)
10.4**
IDEX Corporation Incentive Award Plan (as amended and restated) (incorporated by reference to
Appendix A of the Proxy Statement of IDEX on Schedule 14A, filed March 5, 2010, Commission File
No. 1-10235)
10.5**
Employment Agreement dated November 8, 2015 between IDEX Corporation and Andrew K. Silvernail
(incorporated by reference to Exhibit No. 10.1 to the Current Report of IDEX Corporation on Form 8-K
filed February 19, 2016, Commission File No. 1-10235)
83
Exhibit
Number
Description
10.6**
Third Amended and Restated IDEX Corporation Directors Deferred Compensation Plan (incorporated by
reference to Exhibit No. 10.30 to the Annual Report of IDEX on Form 10-K for the year ended
December 31, 2010, Commission File No. 1-10235)
10.7**
IDEX Corporation Supplemental Executive Retirement and Deferred Compensation Plan (incorporated by
reference to Exhibit No. 10.31 to the Annual Report of IDEX on Form 10-K for the year ended
December 31, 2010, Commission File No. 1-10235)
10.8**
Letter Agreement between IDEX Corporation and Daniel Salliotte, dated September 30, 2010
(incorporated by reference to Exhibit No. 10.17 to the Annual Report of IDEX on Form 10-K for the year
ended December 31, 2012, Commission File No. 1-10235)
10.9**
Letter Agreement between IDEX Corporation and Jeffrey Bucklew, dated January 16, 2012 (incorporated
by reference to Exhibit No. 10.16 to the Annual Report of IDEX on Form 10-K for the year ended
December 31, 2013, Commission File No. 1-10235)
10.10**
Letter Agreements between IDEX Corporation and Eric Ashleman, dated January 14, 2008 and February
12, 2014 (incorporated by reference to Exhibit No. 10.14 to the Annual Report of IDEX on Form 10-K for
the year ended December 31, 2014, Commission File No. 1-10235)
10.11**
Form of IDEX Corporation Restricted Stock Award Agreement effective February 2015 (incorporated by
reference to Exhibit No. 10.16 to the Annual Report of IDEX on Form 10-K for the year ended December
31, 2014, Commission File No. 1-10235)
10.12**
Form of IDEX Corporation Stock Option Agreement effective February 2015 (incorporated by reference to
Exhibit No. 10.17 to the Annual Report of IDEX on Form 10-K for the year ended December 31, 2014,
Commission File No. 1-10235)
10.13**
Form of IDEX Corporation Restricted Stock Unit Award Agreement effective February 2015 (incorporated
by reference to Exhibit No. 10.18 to the Annual Report of IDEX on Form 10-K for the year ended
December 31, 2014, Commission File No. 1-10235)
10.14**
Form of IDEX Corporation Restricted Stock Unit Award Agreement - Cash Settled effective February 2015
(incorporated by reference to Exhibit No. 10.19 to the Annual Report of IDEX on Form 10-K for the year
ended December 31, 2015, Commission File No. 1-10235)
10.15**
Form of IDEX Corporation Performance Share Unit Award Agreement effective February 2015
(incorporated by reference to Exhibit No. 10.20 to the Annual Report of IDEX on Form 10-K for the year
ended December 31, 2015, Commission File No. 1-10235)
10.16**
Form of IDEX Corporation Restricted Stock Unit Agreement for Directors effective February 2015
(incorporated by reference to Exhibit No. 10.21 to the Annual Report of IDEX on Form 10-K for the year
ended December 31, 2014, Commission File No. 1-10235)
10.17**
Form of IDEX Corporation Stock Option Agreement effective February 2015 (incorporated by reference to
Exhibit No. 10.22 to the Annual Report of IDEX on Form 10-K for the year ended December 31, 2014,
Commission File No. 1-10235)
10.18**
Form of IDEX Corporation Restricted Stock Award Agreement effective February 2015 (incorporated by
reference to Exhibit No. 10.23 to the Annual Report of IDEX on Form 10-K for the year ended December
31, 2014, Commission File No. 1-10235)
10.19**
Letter Agreement between IDEX Corporation and Brett Finley, dated December 18, 2015. (incorporated by
reference to Exhibit No. 10.23 to the Annual Report of IDEX Corporation on Form 10-K for the fiscal year
ended December 31, 2015, Commission File No. 1-10235)
10.20**
Letter Agreement between IDEX Corporation and Denise Cade, dated September 24, 2015. (incorporated
by reference to Exhibit No. 10.24 to the Annual Report of IDEX Corporation on Form 10-K for the fiscal
year ended December 31, 2015, Commission File No. 1-10235)
10.21
Stock Purchase Agreement, dated February 4, 2016, by and among IDEX Corporation, Premier Farnell
PLC, Celdis Limited, Premier Farnell Corp. and Akron Brass Holding Corp. (incorporated by reference to
Exhibit No. 10.25 to the Annual Report of IDEX Corporation on Form 10-K for the fiscal year ended
December 31, 2015, Commission File No. 1-10235)
10.22**
Letter Agreement between IDEX Corporation and William K. Grogan, dated December 30, 2016.
84
Exhibit
Number
Description
12
Ratio of Earnings to Fixed Charges
21
Subsidiaries of IDEX
23
Consent of Deloitte & Touche LLP
31.1
Certification of Chief Executive Officer Pursuant to Rule 13a-14 (a) or Rule 15d-14 (a)
31.2
Certification of Chief Financial Officer Pursuant to Rule 13a-14 (a) or Rule 15d-14 (a)
***32.1
Certification pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code
***32.2
Certification pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code
****101
The following materials from IDEX Corporation’s Annual Report on Form 10-K for the year ended
December 31, 2016 formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated
Balance Sheets at December 31, 2016 and 2015, (ii) the Consolidated Statements of Operations for the
three years ended December 31, 2016, (iii) the Consolidated Statements of Comprehensive Income for the
three years ended December 31, 2016, (iv) the Consolidated Statements of Shareholders’ Equity for the
three years ended December 31, 2016, (v) the Consolidated Statements of Cash Flows for the three years
ended December 31, 2016, and (vi) Notes to the Consolidated Financial Statements.
**
***
****
Management contract or compensatory plan or agreement.
Furnished herewith.
In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Annual
Report on Form 10-K shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or
otherwise subject to the liability of that section, and shall not be part of any registration statement or other
document filed under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific
reference in such filing.
85